Lazard Global Sustainable Equity Fund

Sustainable, Responsible &/or ESG Policy:

The Fund's environmental and social characteristics are:

1. To invest at least 50% of the Fund's assets in companies that qualify as sustainable investments under the Investment Manager’s proprietary Sustainability Scorecards framework.
2. To maintain a weighted average ESG rating that is better than the Benchmark Index (as referred to in the section of this Supplement entitled "Benchmark"), based on third-party ESG rating information. The ESG rating measures companies' exposure to, and performance managing, material environmental, social, and governance considerations. The Investment Manager seeks to achieve a better overall ESG rating by making investments in issuers with attractive ESG characteristics and limiting exposure to companies with higher sustainability risks.
3. To maintain a lower weighted average carbon intensity (WACI) than the Benchmark Index, based on third-party environmental data. The Investment Manager seeks to achieve a lower WACI by making investments in companies with a better overall carbon profile and limiting exposure to companies that do not effectively manage carbon risks.
4. To avoid investing in companies that violate global environmental and social norms. The Investment Manager assesses companies against an internally generated watchlist, which leverages third-party vendor information. An exclusion policy is applied by the Fund that prohibits investing in or obtaining exposure to companies that are deemed by the Investment Manager to violate United Nations Global Compact (UNGC) principles or OECD Guidelines for Multinational Enterprises. This helps to avoid investments that, at a minimum, do not meet social and environmental norms with regards to human rights, labour, and anti-corruption, as well as environmental degradation.
5. To promote (i) human rights and avoidance of harm to the environment; (ii) climate change mitigation and avoidance of harm to the environment; and (iii) health and avoidance of harm to the environment; by avoiding investment in corporates that are involved (subject to the thresholds set out in the Pre-contractual disclosure section entitled ‘What are the binding elements of the investment strategy used to select the investments to attain each of the environmental or social characteristics promoted by this financial product?’ below) in: (i) activities related to controversial weapons or the production of non-controversial weapons; (ii) direct fossil fuel activities (including mining, extraction, and/or refining certain fossil fuels including oil, gas, hard coal and lignite), electricity generation from fossil fuels; or (iii) tobacco cultivation and production; respectively.

Objectives of the sustainable investments

For sustainable investments with environmental objectives, each investee company is assessed for its contribution, through its products and services, to environmental objectives such as energy efficiency and resource efficiency activities such as renewable energy, water efficiency, green transportation, and digitisation, which support lower environmental impact from emissions and resource use. The environmental objectives set out under the Taxonomy Regulation ((EU) 2020/852) to which the environmentally sustainable investments can contribute include climate change mitigation and adaptation.

For sustainable investments with social objectives, each investee company is assessed for its contribution, through its products and services, to social objectives such as medical research and devices, food sourcing, product and testing, safety and security services, cybersecurity, financial inclusion services, and payment solutions to support the formal economy. This supports social objectives that include improved health systems, improved consumer safety, and access to financial services.

To assess whether an investment will qualify as a sustainable investment, the Investment Manager uses a proprietary Sustainability Scorecards framework that scores companies across three components: (1) Products and Services, (2) Operations, and (3) Governance. For an investment to qualify as a sustainable investment, a company must receive a positive score (score of +1 to +5 on a scale from -5 to +5) across all three components of the Sustainability Scorecards framework. The Sustainability Scorecards framework assesses whether a company’s products and/or services are contributing to one or more of the above environmental and/or social objectives based on qualitative assessments that incorporate quantitative measures such as revenue and capital expenditure using information sources such as corporate reports, industry research, and third-party data.

Do No Significant Harm

The companies that qualify as sustainable investments are assessed as not significantly harming (DNSH) any environmental or social objectives through steps such as:

• screening out companies with material revenue exposure involved in controversial business activities, such as tobacco, weapons, electricity generation from fossil fuels.
• post screen, undertaking an assessment of the relevant and available indicators of principal adverse impact (PAI) of the qualifying companies on sustainability factors to assess companies' interaction with key stakeholders such as employees, customers, communities, and the environment, as further detailed below.
• an assessment of qualifying companies' compliance with global environmental and social norms through the UNGC process, as further detailed below.

Companies that do not pass the above DNSH assessment do not qualify as a sustainable investment.

The Investment Manager's DNSH assessment takes into account the PAI indicators by reviewing the performance of qualifying companies against relative or absolute thresholds for the relevant mandatory PAI indicators (set out in Table 1, Annex I, EU Regulation 2022/1288 (SFDR Level 2)) for which data is sufficiently available. Relative thresholds for relevant PAI indicators (e.g. PAI 3, 4) are set by reference to peer performance against the PAI indicators in the sub-industry in which the qualifying company operates. Absolute thresholds are those embedded in the PAI indicator methodologies and criteria under SFDR Level 2 (e.g. PAI 10). The worst performing companies, either in relative or absolute terms, will not pass the DNSH assessment and will not qualify as sustainable investments.

Alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights

Investment due diligence is carried out on investments' alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights by leveraging third-party data on United Nations Global Compact (UNGC) principles. Post-investment monitoring ensures any sustainable investment flagged as being in violation of the UNGC principles by the relevant third-party vendor is assessed by the Investment Manager's Sustainable Investment and ESG team in conjunction which will assign a pass/fail after a thorough assessment, with the final decision made by the Investment Manager's Global Stewardship Committee. An investment which fails this assessment will automatically not qualify as a sustainable investment.

Governance practices of the investee companies

The Investment Manager has developed Global Governance Principles that set out expectations for corporate governance on issues such as board independence, accountability and composition, as well as culture, remuneration, shareholder rights, amongst others. The principles provide a framework for governance assessments and stewardship activity, clearly setting out the Investment Manager's expectations of company management and effective stakeholder management.

The assessment of good governance practices is supported by a broad range of governance information from third-party ESG data sets. These data sources also provide governance-related controversy information, which can be used to flag governance issues at investee companies.

Governance assessments and information are fully incorporated into investment due diligence processes, ongoing monitoring of issuers in the portfolio, and stewardship activities.

Process:

The Investment Manager will seek to achieve the Fund’s investment objective primarily through investment in the equity and equity related securities (namely, common and preferred stock and depository receipts, both ADRs and GDRs) of companies located throughout the world, both in developed and emerging markets. The Fund’s investments will typically consist of holdings in companies having greater than US$2 billion in market capitalisation with liquid quoted securities.

The Investment Manager takes a disciplined, actively-managed approach to security selection that is rooted in consideration of environmental, social and governance factors with a view to earning attractive risk-adjusted returns. In that context, the Investment Manager uses fundamental research and analysis to identify companies with strong and/or improving financial productivity at attractive valuations, whose financial productivity is likely to be supported and enhanced into the future as a result of the move towards a more sustainable world (each such company, a "Target Company").

A company must meet three criteria to be classified by the Investment Manager as a Target Company in which the Fund might potentially invest. First, the products and/or services offered by the company must, in the opinion of the Investment Manager, align with the goal of achieving of a greener, healthier, safer, and/or fairer world. Second, these products and services must materially drive either high or improving levels of financial productivity. Third, the company must be managed responsibly from a human capital, natural capital, and governance perspective. See further below for additional detail regarding the analysis undertaken by the Investment Manager to identify Target Companies for investment. 

The first step in the investment process is to identify Target Companies within the investable universe which the Investment Manager believes are capable of sustaining high financial productivity for periods in excess of market expectations or which are capable of improving financial productivity to a greater extent or more expeditiously than the market expects (i.e. are undervalued) and which exhibit good expectations for future cashflows and profitability. 

The next step involves reducing the investable universe using fundamental analysis and research on the companies identified. Such research and analysis involves, among other matters, detailed examination of a company’s financial productivity, validated by an examination of a company’s financial reports to determine how major accounting decisions affect reported financial productivity and thereafter incorporating the results of the foregoing processes into a set of expectations for future cashflows and profitability.

As indicated, the Investment Manager, when constructing the portfolio, at all times takes account of sustainability considerations, with a view to identifying companies whose financial productivity is likely to be supported and enhanced into the future as a result of the move towards a more sustainable world (e.g. by considering the nature of the products and services that the company provides from a sustainability perspective) and also with a view to countering potential risks arising as a result of sustainability concerns that may be material to the particular industries or companies in which the Fund might invest (e.g. by considering the overall ESG profile of the companies). This is achieved through assessing each candidate company, to the extent relevant to the specific company or the industry that it operates, using the Investment Manager's proprietary Sustainability Scorecards framework. The Fund also applies global norms-based and activity-based exclusion criteria in the stock selection process.

As previously mentioned, The Fund also applies global norms-based and activity-based exclusion criteria in the stock selection process. Information in relation to the application of the Investment Manager's proprietary Sustainability Scorecards framework, the exclusion criteria applied in the stock selection process and in relation to other sustainability-related features of the Fund's investments is set out in Appendix III to this Supplement, which Appendix details the environmental and/or social characteristics of the Fund.

The final step in the investment process takes the outputs from the previously outlined steps and determines the position sizes to be taken in a particular company or security.  Throughout the investment process, macro-economic factors, geo-political factors and regulatory uncertainties across the different industry sectors and regions around the globe are monitored and taken into account in constructing the portfolio.

Resources, Affiliations & Corporate Strategies:

Lazard has a dedicated Investment Stewardship team, comprised of 12 members.

Investment Stewardship is delivered through collaboration between portfolio management teams, embedded Investment Stewardship analysts, and a central Investment Stewardship function.

• Embedded Analysts: Support integration of human and natural capital and governance at the issuer and portfolio level, contributing thematic insights within their research platform.
• Central Stewardship Function: Sets research and integration of human and natural capital and governance priorities that support firm-wide Investment Stewardship, engagement strategy, and voting oversight; ensures transparency through reporting and compliance.
• Client Solutions Capability: Works with investment and client teams to deliver clear reporting and analysis, support ESG regulatory reporting obligations, and ensures clients understand how Investment Stewardship insights are integrated across portfolios. The team also supports product strategy and positioning for relevant strategies.

Our relevant investment professionals are fully responsible for conducting Investment Stewardship research and our process is directly linked to financial analysis. We believe our investment professionals are in the best position to understand the material Investment Stewardship risks and opportunities within their sectors, stocks, and portfolios and integrate them into investment decisions. The Investment Stewardship team is responsible for setting the firm’s sustainable investment goals, conducting training, educating investment professionals on relevant Investment Stewardship issues and trends, facilitating client reporting, and helping oversee overall development and implementation of our Investment Stewardship policies.

We are a member or signatory to the following organizations that promote sustainable investing:

General:

• United Nations-supported Principles for Responsible Investment (PRI) – Lazard has been a signatory to the PRI since 2014.
• IFRS – including both Task Force on Climate-Related Financial Disclosures (TCFD) and SASB – Lazard Asset Management has been a supporter of TCFD since 2019. Please refer to Lazard, Inc.’s Task Force on Climate-Related Financial Disclosures Report for additional information. SASB Materiality helps inform our own Materiality Mapping which is renewed annually based on feedback from our investment professionals.
• UN Global Compact – Lazard, Inc. became a participant in the UN Global Compact in 2021. Please see here our letter of commitment.
• Responsible Investment Association Canada – In early 2022, Lazard became a member of RIA, which seeks to promote responsible investment in Canada.
• Pensions and Lifetime Savings Association (PLSA) – Lazard Asset Management Limited has been a member of the PLSA since 2006.

Stewardship and Governance:

• International Corporate Governance Network (ICGN) – LAM has been a supporter of ICGN since 1999. The ICGN sets and promotes standards for corporate governance across the industry, and our investment professionals regularly participate in ICGN events to share insights and to engage with peers in the industry.
• UK Stewardship Code – Lazard Asset Management Limited was a signatory to the 2012 UK Stewardship Code. In 2016, Lazard’s response to the UK Stewardship Code was rated Tier 1. In light of the revised UK Stewardship Code 2020, we reviewed our policies to seek alignment with guidelines outlined under the revised code. We became a signatory of the UK Stewardship Code in 2022.
• Japan’s Stewardship Code – Lazard Japan Asset Management K.K. has adopted Japan’s Stewardship Code since 2014.
• Korea Stewardship Code – Lazard Korea Investment Management has been a signatory for the Korea Stewardship Code in the Korea Corporate Governance Service (KCGS) since 2019.
• FAIRR (Farm Animal Investment Risk & Return) Initiative – Lazard became a member in 2020.
• Board of Director Training Institute of Japan (BDTI) – In 2021, Lazard became a supporter of BDTI, which aims to provide training to board members to improve corporate governance in Japan.

Climate Initiatives

• Institutional Investors Group for Climate Change (IIGCC) – Lazard Asset Management has been a member since 2019. We are active members of the Institutional Investors Group for Climate Change (IIGCC), having participated in the launch of the Net Zero Investment Framework, and regularly participate in Paris Aligned Investment Initiative (PAII) events to inform our view on setting portfolio and company level net zero targets. The IIGCC enables collaboration between businesses, policymakers, and investors to mobilize capital for the low-carbon transition and ensure resilience to the impacts of a changing climate.
• CDP (formerly, the Carbon Disclosure Project) – Lazard Asset Management became an investor signatory in 2020. In 2024, Lazard Asset Management supported the non-disclosure campaign for corporates Increasing the level of disclosure via the CDP will help to better inform our climate research and specifically our Climate Alignment assessment Framework which uses CDP data as one of its key data sources.
• Net Zero Asset Manager Initiative – Lazard became one of the first US-based asset managers to join this initiative in March 2021. This aligns with global efforts as set out in the Paris Agreement on Climate Change to limit warming to 1.5 degrees Celsius.
• Climate Action 100+: In 2022, Lazard Asset Management joined the Climate Action 100+ collaborative engagement initiative. Our investment professionals continue to engage directly with all US and European listed energy sector stocks but where corporate access is more challenging, we leverage our participation in CA 100+ to engage with just two emerging market companies. During 2024, we had ongoing CA 100+ engagements with Ecopetrol and Petróleos Mexicanos (PEMEX) through our emerging markets platform.

Passive Memberships

• Taskforce on Nature-Related Financial Disclosures (TNFD) – In December 2021, Lazard became a member of the TNFD Forum, which aims to aid in the development and delivery of a risk management and disclosure framework for organizations to report and act on evolving nature-related risks.
• Ellen MacArthur Foundation – In 2022, Lazard became part of the Ellen MacArthur Foundation community – a foundation that works to accelerate the transition to a circular economy.

Diversity & Inclusion:

• 30% Club – Lazard Asset Management Limited is a founding supporter and member of the 30% Club since 2015 and has rolled out its cross-company mentoring program in the United Kingdom since 2016.
• UK Women in Finance Charter – Lazard Asset Management Limited has been a signatory to the UK Women in Finance Charter since 2018.
• CEO Action for Diversity & Inclusion Pledge – Lazard, Inc.’s CEO signed the pledge in December 2020 to build a stronger and more diverse workforce and expand mentorship and allyship in the workplace.

SDR Labelling:

Not eligible to use label (out of scope)