Sustainable, Responsible &/or ESG Policy:

Investment opportunity

The FF Sustainable Japan Equity Fund aims to achieve long-term capital growth from a portfolio principally made up of Japanese equity securities with strong ESG characteristics.

The fund will consider a wide range of environmental and social characteristics on an ongoing basis. Environmental characteristics include, but are not limited to, climate change mitigation and adaptation, water and waste management and biodiversity, while social characteristics include, but not limited to, product safety, supply chain, health and safety and human rights. Controversies involving environmental and social characteristics are regularly monitored. Environmental and social characteristics are analysed by Fidelity’s fundamental analysts and rated through Fidelity’s proprietary ESG ratings. The fund seeks to promote these characteristics by adhering to the Fidelity Sustainable Family Framework.

In addition, the portfolio managers (Lead Portfolio Manager, Masafumi Oshiden and Assistant Portfolio Managers Tomohiro Ikawa, Cenk Simsek and Eddie Tajima), will exclude investment in issuers with Fidelity ESG ratings of ‘C’ or below.

The fund is actively managed. The portfolio managers will, when selecting investments for the fund and for the purposes of monitoring risk, reference TOPIX Total Return Index as the index constituents are representative of the type of companies the fund invests in. The fund’s performance can be assessed against its index. 

The portfolio managers have a wide range of discretion relative to the index. While the fund will hold assets that are components of the Index, it may also invest in companies, countries or sectors that are not included in, and that have different weightings from, the index to take advantage of investment opportunities. It is expected that over long time periods, the fund’s performance will differ from the Index. However, over short time periods, the fund’s performance may be close to the index, depending on market conditions. 

Shareholders’ attention is drawn to the fact that the index is not an index which integrates environmental and social considerations. Instead, the fund promotes environmental and social characteristics by adhering to the Fidelity Sustainable Family Framework, as described above.

Masafumi uses bottom-up analysis to select quality companies with high sustainable growth. This is coupled with ESG analysis at the stock and sector level to select companies that follow best practices and sustainable development and have high ESG scores and low controversy risks. It is a research-driven approach that leverages Fidelity’s proprietary fundamental and ESG research, as well as additional market data.

Investment style

Along with aiming to achieve long-term capital appreciation, the fund also endeavours to promote Japanese companies that follow best practices in terms of sustainability, both financial and non-financial. This focuses the fund’s investments on companies with positive and sustainable financial and ESG-related characteristics.

The fund follows a bottom-up investment approach, making use of our extensive local and global research expertise to identify best-in-class ESG companies with sustainable growth potential that are among the highest rated by our proprietary fundamental and ESG ratings.

The portfolio managers believe strongly in active ownership and engagement with companies held in the fund in order to influence positive change. The engagement process encourages companies to adopt better strategies and practices and helps the portfolio managers to gain corporate insights that can positively influence investment analysis and proxy voting.

A sustainable approach

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 managers consider have failed to conduct their business in accordance with accepted international norms, including as set out in the United Nations Global Compact (UNGC).

The portfolio managers focus on sustainable long-term investments incorporating financial and ESG analysis. The stocks selected by the portfolio managers will meet the following sustainability characteristics:

• The fund integrates sustainability analysis into its investment process and promotes environmental and/or social characteristics. Sustainability factors considered will vary based on the issuer in question.
• A minimum of 70% of the fund’s net assets will be invested in securities deemed to maintain favourable ESG characteristics, defined by reference to measurements such as ESG ratings provided by external agencies or Fidelity ESG Ratings*.
• The remaining net assets must be in issuers demonstrating improving characteristics or with potential for improvement, as determined by Fidelity.
• The fund excludes companies involved in the production and/or distribution of cluster munitions and landmines (Cluster Munitions and Anti-personnel Landmines (CMAPL) Exclusion List) and issuers which the portfolio managers consider having failed to conduct their business in accordance with accepted international norms, including as set out in UNGC. The fund employs further exclusions for production and/or distribution of tobacco, weapons and thermal coal, Artic oil and gas and oil sands, and may employ further exclusions at the discretion of the portfolio managers.
• The fund follows the ‘Ratings Upgrade’ approach under Autorité des Marchés Financiers (AMF) (French Financial Supervisory Authority). The ESG rating of the fund must be higher than the ESG rating of the investment universe after eliminating at least 20% of the lowest ESG-rated issuers.
• The fund leverages Fidelity’s differentiated research capabilities and our Tokyo-based analysts’ top ideas to deliver a portfolio that promotes favourable ESG characteristics. The investment process remains a direct reflection of the analyst team’s best sustainable ideas within the Japanese equity universe.

*Further details on the methodology applied are set out at https://fidelityinternational.com/sustainable-investing-framework/ and may be updated from time to time.

Process:

The investment process of the fund follows these key stages:

• Defining the ESG investment universe
• Stock research and selection (combining financial and ESG analysis)
• Portfolio construction and risk control
• Company engagement

 ESG investment universe

The investment universe comprises only quality companies with high sustainable growth and strong ESG credentials. From a liquidity perspective, the fund typically avoids companies with a market capitalisation of less than JPY50 billion.

In summary, the investment universe is determined by the following criteria:

• Only include stocks with strong ESG credentials (≥B Fidelity ESG ratings).
• Norm-based exclusions: UN Global Compact violations etc.
• Exclusion of controversial weapons, producers of semi-automatic weapons and semi-automatic firearms.
• Exclusion of all producers and manufacturers of tobacco and tobacco-related products.
• Exclusion of mining, distribution or refining of hard coal and lignite.
• Exclusion of oil sands and the production of arctic oil and gas.
• Exclusion of electricity generation w/ a GHG intensity of >100g Co2e/kWh.
• Sector exclusions: gambling and adult entertainment*.

Minimum of 70% of a fund’s net assets are invested in securities deemed to maintain favourable ESG characteristics. ESG characteristics are determined by reference to ESG ratings provided by Fidelity ESG Ratings or external agencies. Favourable ESG characteristics means a Fidelity ESG Rating of at least C or the equivalent as assessed by an external agency. 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 a fund’s net assets are allowed in issuers that are not deemed to maintain favourable ESG characteristics in accordance with the criteria above, but which demonstrate improving sustainable indicators.

Improving sustainable indicators are issuers classified as such through the trajectory outlook of Fidelity ESG Ratings or issuers which in the view of the Portfolio Management Team demonstrates the potential for improvement through the implementation and execution of a formal engagement plan. The criteria used to determine this reference rating may change over time and will be updated athttps://fidelityinternational.com/sustainable-investing-framework/.

Through the investment management process, the Portfolio Management Team aims to ensure that investee companies follow good governance practices.

*The fund does not hold companies that generate >5% revenue from these sectors related activities - calculated as recent-year percent of revenue, or maximum estimated percent, a company has derived from these sectors related business activities.

 Stock research and selection

The Portfolio Management Team follows a pure bottom-up investment approach, making use of our extensive local and global research expertise to uncover quality companies with high sustainable growth that they believe are being mispriced or unrecognised by the market. They are looking for companies that can provide sustainable growth, while still generating strong free cash flows. On top of strong growth characteristics, they favour companies with above-average returns, quality management teams and solid balance sheets.

The fundamental analysis process involves both financial and ESG analysis. The Portfolio Management Team utilises bottom-up analysis to select companies in terms of quality, growth and returns (with a long-term view on sustainability and a focus on long-term winners) and an ESG analysis to select companies with best practices, sustainable development, high ESG scores and low controversy risks.

Portfolio construction and risk control

In terms of portfolio construction, the Portfolio Management Team follows a disciplined investment approach, drawing on our research platform in terms of both ESG and fundamental ratings. As such, there is a strong correlation between our best proprietary research ideas and portfolio exposures, with a focus on quality companies with high sustainable growth potential.

Individual stock weights are determined by our proprietary ESG and fundamental ratings, with the largest positions taken in companies at the upper end of the scale. To ensure that the portfolio is focused on best-in-class companies, only those that are ≥ B on Fidelity’s ESG ratings (on a scale of A to E) will be considered. The fund is also monitored against MSCI ratings to ensure that it complies with the requirement of > 70% exposure to ESG Leaders (minimum BBB MSCI ESG Rating) as set out in the investment objective.

Furthermore, companies that are deemed long-term winners by our analysts and are showing an improving ESG trend tend to rank among the largest portfolio positions. For example, a company that is A rated with improving ESG credentials and is seen as a ‘long-term winner’ in its respective industry will typically have a maximum fund weight.

Investment ideas and portfolio construction are discussed in the regular analysts’ best idea meetings (monthly basis), as well as in ad-hoc meetings between the Portfolio Management Teams. Discussions include a rigorous dissection of sector and company views, as well as individual stock weights. The fund then goes through an optimisation process and is reviewed. Buy and sell decisions are triggered by changes in analyst ratings on both the fundamental and ESG side, and are be discussed at the monthly analyst meetings, as well as on an ad hoc basis.

The final fund is comprised of 40 to 60 holdings with active stock weights typically +/-5% versus the comparative market index.

The risk management process has multiple lines of defence:

• Absolute risk — focus on quality companies with high sustainable growth potential.
• Relative risk — awareness of overall cumulative active positions and correlations within the fund.
• Macro factors — monitoring of sensitivity to factors such as currency and interest rates, and understanding sources of risk.
• The Portfolio Management Team monitoring — continuous monitoring of risk exposures at both the stock and fund level.
• Oversight — investment risk, quarterly fund review process.

The Portfolio Management Team 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.

Company engagement

The Portfolio Management Team believes strongly in active ownership and engagement with as many companies as possible held in the fund in order to influence positive change. The engagement process encourages companies to adopt better strategies and practices, and helps the Portfolio Management Team gain corporate insights that can positively influence investment analysis and proxy voting.

As the Head of Engagement in the Sustainability Team, Tomohiro Ikawa is key in the preparation and execution of engagement with corporates and coordinating such activities with analysts and portfolio managers. Ultimately, the Portfolio Management Team works closely together in the portfolio construction and review process, as well as in the selection of corporates for active engagement.

 Engagement framework

Philosophy

• Focused
• Measurable criteria with emphasis on direction of travel
• Allow time for meaningful change

Portfolio approach

• Integrated fundamental and ESG analysis on companies
• Multiple engagement points through Sustainability Team, in-house analysts
• Low turnover enables time for change

The main aspects of engagement are as follows:

• Clear goals and process
• Strong potential to positively influence companies
  • Dialogue with management: Direct dialogue with management teams and boards of directors
  • Proxy voting: an effective tool to engage with companies
• Collaboration between our analysts, ESG specialists and portfolio managers

 Investment team - Engagement team - Sustainability Team

• Corporate analysis and relationship from investment professionals
• Accumulated engagement know-how in the Tokyo engagement team
• Centre of excellence including thematic engagement opportunities from Global Sustainability Team.

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)