Sustainable, Responsible &/or ESG Policy:

The fund considers that investment in a constituent of the benchmark is an investment in economic activities with an environmental objective (that do not qualify as environmentally sustainable under the EU Taxonomy) and therefore investment in a constituent of the benchmark is a sustainable investment. The fund will invest:

• A minimum of 90% of its assets in sustainable investments of which a minimum of 0% have an environmental objective which is aligned with the EU Taxonomy, a minimum of 90% have an environmental objective (which is not aligned with the EU Taxonomy) and a minimum of 0% have a social objective; and
• Not more than 10% of its assets (a) in securities that were previously constituents of the benchmark may be held for a transition period after they fall out of the benchmark in a manner appropriate to protect the best interests of investors and will then be divested; and (b) for liquidity, hedging and efficient portfolio management; provided that such investments do not significantly harm any other environmental and social objectives and that investee companies follow good governance practices.

As described above, in respect of its direct investments, the fund is also subject to: (a) a firm-wide exclusions list, which includes cluster munitions and anti-personnel landmines; and (b) a principle-based screening policy.

Consideration of the principal adverse impacts on sustainability factors of investment decisions (referred to as principal adverse impacts) is also incorporated into the fund through a variety of tools, including:

• Due diligence: Analysis of whether impacts on sustainability factors are material and negative.
• ESG rating: Fidelity references ESG ratings which incorporate consideration of material principal adverse impacts such as carbon emissions, employee safety and bribery and corruption, water management and, for sovereign issued securities, ratings used incorporate consideration of material principal adverse impacts such as carbon emissions, social violations and freedom of expression.
• Exclusions: When investing directly in corporate issuers, the fund applies the Exclusions (as defined above) to help mitigate the principal adverse impacts through excluding harmful sectors and prohibiting investment in issuers that breach international standards, such as the United Nations Global Compact.
• Engagement: Fidelity uses engagement as a tool to better understand principal adverse impacts and, in some circumstances, advocate for mitigating the principal adverse impacts. Fidelity participates in relevant individual and collaborative engagements that target a number of principal adverse impacts (such as, Climate Action 100+, Investors Against Slavery and Trafficking APAC).
• Voting: Fidelity’s Voting Policy includes explicit minimum standards for board gender diversity and engagement with climate change. Fidelity may also vote to help mitigate principal adverse impacts.
• Quarterly reviews: Monitoring of principal adverse impacts through the sub-fund’s quarterly review process.

Furthermore, the fund is a member of Fidelity's Sustainable Fund Family and has enhanced requirements in terms of its allocation to companies with strong ESG characteristics. A minimum of 70% of the fund’s net assets will be invested in securities that maintain sustainable characteristics. This typically consists of companies with MSCI ESG rating AAA-BBB or rated A-C by Fidelity for sustainability. Furthermore, the Portfolio Managers aim to improve on this profile by increasing the fund’s exposure to higher rated issuers and excluding issuers rated below a MSCI ESG BB rating and Fidelity ESG D stable rating.

Lastly, ESG integration is carried out at the fundamental research analyst level. Fidelity has developed an integrated ESG approach where ESG integration is carried out by the fundamental research analysts, primarily through the implementation of Fidelity’s proprietary ESG Rating framework. This rating framework was established in 2019 and is designed to generate a forward-looking and holistic assessment of a company’s ESG risks and opportunities, based on sector-specific key performance indicators across 130 individual and unique sub-sectors. In addition, the Portfolio Managers are also active in analyzing the effects of ESG factors when making investment decisions. The Portfolio Managers and analysts examine the business, customers and suppliers, and may often visit the companies in person to develop a view of every company in which we invest and ESG factors are embedded in this research process.

Process:

The fund is constructed systematically, within a prudent risk budget, driven by bottom-up issuer and bond selection informed by Fidelity credit and ESG analysis, and our proprietary multifactor model.

Our approach to Multifactor Credit investing

The fund delivers an actively managed sustainable corporate bond exposure by using our proprietary factor model to select and weight securities while capturing the key characteristics of the market. 

Our investment process is designed to maximise the:

• Advantages of our unique multifactor model.
• Impact of high-quality proprietary credit research.
• Precision in portfolio construction.
• Repeatability and consistency of successful performance outcomes.
• Overall cost-effectiveness of our investment solutions.

In 2020, our approach was awarded the title of ‘factor investing offering of the year’ at the European Pensions Awards, an industry event launched to recognise firms that ‘set the professional standards in order to best serve European pension funds’.

Defining the investable universe

The output of the factor construction and issuer selection process is a factor score for each issuer which is subsequently enriched by security selection at a later stage. The next step of the investment process is to define the investable universe.

We apply our internal Fidelity research inputs to screen the initial list of issuers, in terms of credit assessment (fundamental, outlook and relative value), equity assessment when relevant, internal ESG assessment, as well as the ESG outlook, and engagement activity. This step narrows the investment universe to companies where we have expressed a positive or at least a stable trajectory and takes into account other internal selection criteria, such as liquidity. It aims to enhance the predictability of cash-flow repayments and reduce turnover in the portfolio through filtering out issuers not seen as favourable by our research teams.

As part of the funds’ aim to deliver a portfolio with an enhanced sustainability profile, securities from certain sectors are not considered for inclusion as per the Fidelity ‘Sustainable Family’ exclusion list.

The fund excludes companies involved in the following activities: controversial weapons, semi-automatic weapons, conventional weapons, thermal coal and tobacco, as well as companies in violation of the 10 principles of the United Nations Global Compact Principles and may include other initiatives as defined by our third-party screening partner. 

Additionally, as part of the fund’s inclusion within the Fidelity Sustainable Fund Family range, a minimum 70% of the funds will be invested in securities that maintain favourable ESG characteristics. ESG characteristics may include, but are not limited to, governance and superior management of ESG issues.

Furthermore, the Portfolio Managers aim to improve on this profile by increasing the fund’s exposure to higher rated issuers and excluding issuers rated below a MSCI ESG BB rating and Fidelity ESG D stable rating.

More information can be found on our website at: https://professionals.fidelity.co.uk/sustainable-investing/our-approach/latest-reports-guides

The aim of the benchmark index is to track the performance of global investment grade corporate bonds denominated in Euro, UK sterling and US dollar and to align with a self-decarbonisation trajectory, as well as a minimum reduction in weighted average carbon intensity* versus the index provider’s market cap weighted index (the benchmark index).

At the launch, gross greenhouse gas emissions as well as greenhouse gas intensity of the index are reduced by a minimum of 50% compared to benchmark index. Throughout the life of the index the carbon emissions as well as the carbon intensity of the Index must always fulfil the self-decarbonisation trajectory as well as the 50% reduction against the benchmark index.

The self-decarbonisation trajectory is at least 7% annually. This is consistent with the decarbonisation trajectory from the Intergovernmental Panel on Climate Change (IPCC) 1.5 °C scenario and is defined by an annual minimum carbon intensity reduction of 7% compared to the carbon intensity of the Index on its base date (31 January 2020) in a geometric progression. The 7% annual reduction is split into two 3.5% semi-annual reductions which become effective at the end of January and end of July.

The indices also apply the following exclusions:

• Coal mining and coal power generation; >10% revenues from fossil fuel production, exploration, distribution and services.
• >50% revenues from electric power generation from fossil fuel sources.
• Companies with significant negative impact on one of SDGs 12-15.
• Tobacco cultivation and production.
• Controversial weapons.
• UNGC violators.

*’Weighted Average Carbon Intensity’: the sum of each index weight multiplied by the Co2e per US$ million of revenue of each holding. This metric provides a snapshot of the index exposure to carbon-intensive companies and includes scope 1 and scope 2 carbon emissions.

Portfolio construction

Portfolio construction is designed to maximise the strategy’s exposure to issuers with the best credit factors and bonds with the most attractive valuations. The outcome is a strategy that generates alpha from credit selection based on the proprietary multifactor model and sustainability assessment, while providing macro level exposures in line with the index.

Once the investable universe is defined, the Portfolio Managers design a precise risk budget which considers:

• Conservative limits on credit, duration, and curve exposures.
• Ratings concentration and dispersion constraints at country, sector and issuer level.
• Exclusions of issuers that demonstrate no ESG improvements.

Fidelity Optimus creates a suggested portfolio, and our Fidelity proprietary software offers the following benefits:

• Flexibility: The number, type and extent of risk budget and guidelines constraints and yield target will differ depending on the client needs and requirements and prevailing market environment. The risk budget communicated to Fidelity’s proprietary optimiser nuances the number of instruments and allocation to each security which helps the Portfolio Managers enhance the quality of the final solution.
• Calibrated: Specifically, to avoid unnecessary churning and transaction costs, based on estimated transaction costs from a proprietary model with 12 years of bond data. A high accuracy in estimating transaction costs is critical to delivering an optimal fixed income investment solution to clients in today’s low yield environment.
• Integrated risk management: The portfolio solution must comply with every single constraint, otherwise Fidelity Optimus indicates that ‘no solution’ is possible.
• Reliable and repeatable: A consistent outcome is available within or outside the software, given the same initial portfolio, universe of investment, turnover constraints and an identical target function.

Implementation

Efficient trading is vital for minimising the impact of portfolio implementation shortfall on the performance of fixed income funds, especially in today’s low yield environment. As a result, there is no straight-to-trade implementation of Fidelity Optimus recommendations within our investment process. The Portfolio Managers use their skill and experience, and work closely with the fixed income traders, to implement the final portfolio at the optimal time to achieve best execution, and realistic and acceptable turnover. The trading function is an integral part of the investment process and, in addition to ensuring best execution, traders provide a unique source of insight for refining fund positioning. Our multifactor investment process has performed particularly well in volatile markets given a broader dispersion of returns.

Derivatives

Derivatives may be used for the purpose of efficient portfolio management.

Resources, Affiliations & Corporate Strategies:

Fidelity has been committed to sustainability for over a decade. Having launched our Principles of Ownership in 2003 and as a signatory to the Principles for Responsible Investment since 2012, sustainable investing has been, and remains, a key priority. We have an extensive global research network of fundamental research analysts with broad bottom-up asset class coverage who works closely with our global sustainability team. 

As an investment manager, we have a fiduciary duty to act in the best interests of our clients. As such we have developed our approach to sustainable investing, comprising three key components (integration, stewardship, and solutions), as articulated in our Sustainable Investing Principles.  This approach aims to provide our clients with investment solutions that meet their financial and non-financial objectives, and to comply with rapidly evolving sustainability regulations for product labelling and disclosure. 

Proprietary ratings and tools sit at the heart of Fidelity’s sustainable investing approach, facilitating the integration of sustainability in our fundamental research and ensuring a consistent approach. These tools include:

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

Our ESG Ratings aim to provide a forward-looking assessment of an issuer’s sustainability characteristics, with emphasis on how it operates and the associated negative impact and risks.

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.

Note: Third party ESG ratings may apply when a Fidelity ESG rating is not available. The prioritisation between third party ESG ratings and Fidelity ESG ratings may vary across products, please refer to the prospectus for more information.

 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. We look at three key areas:

• Carbon emissions disclosure: Disclosure of Scope 1, Scope 2 and material Scope 3 emissions.
• Emissions reduction targets: Concentrates on current emissions, net zero GHG emissions ambitions, targets and carbon reduction targets.
• Climate governance: Analyses executive remuneration plans linked to climate ambitions, as well as governance responsibilities and oversight.

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

Our SDG Tool provides an insight into an issuer’s positive contribution to environmental and social outcomes. Here, we focus on products and services (what an entity does), rather than operational alignment (how an entity operates).

It is intended to complement our ESG Ratings, which assess the management of adverse impacts arising from ESG issues.

SDG Tool primary use cases:

• Issuer and entity-level assessment - analyses the percentage of revenue that contributes to each SDG. This can be used as the input to help define a thematic investment universe.
• Sustainable Finance Disclosure Regulation (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‘. 
• Reporting - 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: an internal forum to review relevant quantitative and qualitative metrics and discuss sustainability integration in specific strategies.

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 steward 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. 

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 Melbourne. 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.

The significant expansion of our team - nearly half of whom joined in 2021 or later - underscores the growing importance of sustainability within the financial services sector. This increase in team size, knowledge, and skillset has also allowed us to organise the team based on specialisation. Broadly, the team is divided into specialists focused on:

• Stewardship and research
• Strategy, product, and governance
• Client engagement

Within these broad areas, sustainable investing specialists focus on key themes such as climate, diversity, deforestation and circular economy among others.

*Source: Fidelity International, as at 31 March 2025. Excludes China AMC resources. 

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 (listed per category):

Gender Diversity:

• 30% Club Australia (2021)
• 30% Club Hong Kong (2022)
• 30% Club Japan (2019)
• 30% Club Investors Group (2019)
• 40:40 Vision (2020)
• Bright Network Women in Leadership
• Lord Mayor's Appeal - We Can Be
• Women in Finance Charter (2017)
• Women on Boards (2018)

Social Inclusion and Diversity:

• #10000 Black Interns (2020)
• BBBA Talent Accelerator (2020)
• Black North Initiative
• Black Young Professionals
• Catalyst After School Programme
• Disability:IN (2022)
• Diversity Project
• LGBT Great (2019)
• Lord Mayor's Appeal (2019)
• Minority Supplier Development UK (2020)
• OutBritain (2022)
• President’s Challenge Enabling Employment Pledge and Enabling Mark (2023)
• Race at Work Charter
• Social Enterprise UK (2021)
• Social Mobility Foundation (2021)
• Stonewall (2016)
• Trans in the City (2021)
• Valuable 500 (2019)
• Veteran Owned UK (2021)
• WeConnect International (2021)

Climate Change:

• Asia Investor Group on Climate Change (2020)
• CDP - formerly Carbon Disclosure Project (2019)
• Climate Bonds Initiative (2019)
• Climate Investment Summit (2022)
• Coalition for Climate Resilient Investment
• 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 Agenda (2021)
• Investor Group on Climate Change (2021)
• Net Zero Asset Managers Initiative (2020)
• One Planet Asset Manager Initiative (2021)
• Partnership for Carbon Accounting Financials (2022)
• Point Zero Carbon Programme (2022)
• Powering Past Coal Alliance (2021)
• Transition Pathway Initiative (2021)
• UN Climate Change Conference (2021)

Responsible Investment and Finance:

• Asia Securities Industry and Financial Markets Association (2015)
• Asia Research & Engagement (2023)
• European Sustainable Investment Forum (2017)
• European Public Real Estate Association (2023)
• Hong Kong Green Finance Association (2020)
• International Regulatory Strategy Group
• Investment Association (2010)
• Investor Forum - UK (2014)
• Principles for Responsible Investing (2012)
• The Purposeful Company Task Force
• Responsible Investment Association Australasia (2021)
• Sustainable Trading (2005)
• UK Sustainable Investment and Finance Association (2010)
• World Benchmarking Alliance (2020)

Governance and Corporate Accountability:

• Asian Corporate Governance Association (2004)
• Assogestioni (2007)
• Corporate Governance Forum (2009)
• Hong Kong Principles of Responsible Ownership (2017)
• International Corporate Governance Network (2005)
• Japanese Stewardship Code (2014)
• Taiwan Stock Exchange’s Stewardship Principles for Institutional Investors (2016)
• UK Stewardship Code (2010)

Biodiversity:

• Finance for Biodiversity (2021)
• Finance for Biodiversity Pledge (2021)
• Green Praxis Biodiversity (2022)
• Natural Capital Investment Alliance (2021)
• Taskforce on Nature-related Financial Disclosures Forum (2021)
• The Finance Sector Deforestation Action Initiative (2023)

Other Initiatives and Collaborations:

• Council for Sustainable Business
• Edinburgh Airport Sustainability Pledge
• Environment management system standard ISO 14001 (2023)
• Farm Animal Investment Risk and Return (2020)
• Inspiring More Sustainability (2019)
• Investors Against Slavery and Trafficking Asia-Pacific (2020)
• Maastricht University & GRESB (2021)
• Mental Health First Aid Training (2017)
• WEF Stakeholder Capitalism Metrics (2019)
• WorkWell Leaders (2023)

SDR Labelling:

Not eligible to use label (out of scope)