Sustainable, Responsible &/or ESG Policy:

The fund's investment philosophy is anchored in the belief that markets are often inefficient in discounting future returns. The further we look into the future, the greater the potential inefficiency. This is because there is a cost to doing rigorous analysis and processing information, and such analysis is subject to behavioural bias. For this fund, the team focuses on areas where these inefficiencies are greatest, to find companies where the market is underestimating the longevity (duration) of company’s pricing power and where three-to five-year expectations are too low. The team also believes that consideration of ESG factors while analysing investment opportunities results in better financial and ESG outcomes, which aids the delivery of sustainable growth and high returns on capital over time.

At Fidelity, we use the term ‘sustainable investing’ to encompass ESG issues and related topics in this continually evolving area as we believe that Sustainable Investing better articulates what we aspire to as asset managers and stewards of our clients’ capital, which is to aim to enhance returns and promote responsible capital allocation.

Environmental: On the environmental side, this means the impact that companies have on their surroundings and anticipating how global themes such as climate change, water scarcity and the transition to a circular economy may impact their business models over the long-term. This is referred to as ‘dual materiality’ between the company and environment as they impact each other.

Social: Social issues are hugely important if companies are to ensure they are insulated against business risks. For example, companies must understand that their business relationships with suppliers and employees carry reputational and regulatory consequences. It is important that they comprehend the importance of having full oversight of their supply chain.

Governance: While governance issues have long been a focus of investors, today’s clients expect investment managers to play a key role in ensuring that investee companies operate to the highest standards. This is achieved by educating organisations on the benefits of strict and transparent accounting practices, diverse and inclusive leadership teams, and remuneration and incentive plans that align the goals of the company with those of the board.

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. The fund also excludes civilian firearms, adult entertainment and gamily of issuers that derive more than 5% of their revenue threshold from those businesses.

Process:

The investment process of the fund can be broken down into following six different stages:

• Exclusions and screens
• Sustainable Investment (SI) assessment
• Idea generation
• Research and selection
• Portfolio construction and risk management
• Active ownership

Exclusions and screens

The starting investable universe of the fund consists of approximately 3,000 global companies in the fund’s index. For the fund, we aim to exclude companies whose activities or failures cause environmental or social harm. 

The exclusions which are applied to the strategy include:

Firm wide exclusions: The firm wide exclusion framework screens for issuers with involvement in the various categories of controversial weapons, the use of which is prohibited by international treaties or conventions. These include cluster munitions, landmines, biological weapons, chemical weapons, blinding laser weapons, incendiary weapons, non-detectable fragments. We also screen for nuclear weapons for non-signatories of the Treaty on the Non-Proliferation of Nuclear-Weapons, specifically manufacturers of nuclear weapons, warheads, whole nuclear missiles, and/or nuclear fissile materials; manufacturers of components and delivery platforms developed and/or significantly modified for exclusive use in nuclear weapons; and issuers that provide support services related to nuclear weapons.

Fund exclusions: These apply to issuers who fail the Ten Principles of the United Nations Global Compact (UNGC), the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the United Nations Guiding Principles for Business and Human Rights, Responsible Business Conduct and the International Labour Organization (ILO) Conventions as identified by ISS-Ethix and MSCI and reviewed by Fidelity. This research is complemented by Fidelity’s forward-looking assessment of a company and any changes to its practices.

The above DNSH activities are excluded in the Sustainable Global Equity Fund at the indicated revenue threshold, along with the controversies and principal adverse impacts: For more details on Fidelity’s Sustainable Investing Framework please see: https://fidelityinternational.com/sustainable-investing-framework/ . *Qualifying criteria apply.

Companies that meet these criteria are then eligible for further consideration and sustainable investment assessment. 

SI assessment

The investible universe is defined using our SI assessment based on below criteria:

• Enabling environmental or social objectives. There are three possible routes to achieve this. The first is to have over 50% of revenues aligned to the EU Taxonomy. The second is to have over 50% of revenues aligned to UN Sustainable Development Goals, as determined by Fidelity’s SDG tool. The third is to have a validated Science Based Target Initiative (SBTi) target consistent with a 1.5 degree or lower scenario.
• Do No Significant Harm. We have a set of screens that identify issuers assessed to be causing harm. These are based on revenues from certain activities, controversies, and the worst performers on sustainability screens. (See exclusions section above).
• Minimum safeguards and good governance. This is covered by setting a minimum ESG rating threshold, fundamental analysis as well as the measures above.

Our Sustainability Team has built a proprietary SDG tool that is used to measure a company's Sustainable Development Goal (SDG) alignment.  It works by taking FactSet’s Revere Business Industry Classification System (RBICS) dataset, which breaks down an issuer's revenues across approximately 1,800 different categories, and then maps these different revenue streams to SDGs, looking at the underlying targets and indicators to determine whether or not a specific business activity is making a contribution to any of the SDGs.

Idea generation

The Portfolio Managers have a pluralistic approach to idea generation, relying on a combination of our research inputs from 118* analysts across the globe including approximately 38* dedicated ESG specialists), our proprietary SDG tool (to identify companies making a meaningful impact to United Nations Sustainable Development Goals), company meetings and conferences and third-party research (sector and thematic research, consultants/industry experts meetings), and quantitative screens to help narrow the universe. 

Only stocks which meet the required sustainability criteria and are consistent with the investment philosophy are considered for further analysis. 

In practical terms, the Portfolio Managers reference the investment recommendations of the Sustainability Team as well as other global diversified and global sector portfolio managers which provides them with an overall perspective and highlights the most promising investment themes and their best stock ideas. 

*Source: Fidelity International, as at 31 March 2024.

Research and selection 

The research and selection process consists of three stages: (1) Sustainability – finding companies that enable a more sustainable economy, (2) Fundamentals – rigorous bottom-up financial analysis and (3) Valuation – selecting underappreciated stocks with attractive risk-rewards. 

Stage 1 – Sustainability. The Portfolio Management Team works in collaboration with our fundamental and ESG analysts to understand and analyse a company’s ESG profile and SDG alignment. This involves a thorough assessment of ESG risks and opportunities at the stock (ESG factors) and sector levels to select companies having best practices, sustainable development, high ESG scores and low controversy risks. At a stock level, the focus is on identifying the companies best positioned to drive positive change and also those that are poised to benefit from multi decade megatrends. This is informed by an in-depth assessment of the company’s products and services to assess contribution to the United Nations SDGs. We also believe investing in businesses contributing to the SDGs is a way of accessing several powerful economic themes such as decarbonisation, financial inclusion, and health and wellbeing. These themes (among others) are aligned to sustainable development and provide a rich source of investment opportunity. 

This is an iterative process conducted alongside fundamental/financial analysis, with the two aspects informing one another. This approach also serves as a tool to highlight areas for further engagement with companies.

Stage 2 – Fundamentals. Detailed financial model and industry analysis is carried out in conjunction with the relevant Fidelity analyst to build a deep understanding of industry structure and how this may evolve in the future. This includes analysis of the company’s financial model, industry structure, capital allocation and risk profile. 

Throughout the research process, the Portfolio Managers use company meetings not only to build conviction in ideas, but also to draw broader conclusions and identify implications for other industries and businesses within that specific industry value chain. 

The Portfolio Managers are looking for companies which fit the following profiles:

Duration – companies with the durable competitive advantages or underappreciated growth tailwinds, where the market overlooks the compounding potential of these businesses. 

Change

• Structural change – Companies which are changing for the better, and the market has failed to recognise this.
• Transitory change – Companies where a short-term event is weighing on the perception and valuation, and masking a higher quality business.

Stage 3 – Valuation. For selecting underappreciated stocks with attractive risk-rewards, the Portfolio Managers use a combination of absolute and relative valuation metrics for both existing holdings and new potential candidates.

They derive an intrinsic value range using a range of valuation tools; returns based multiples 3+ years out, multiples versus history, versus peers and long-term Discounted Cash Flows (DCF) to build an expectation of Total Shareholder Return (TSR), to be used as a guide not a rule. ESG considerations and SDG profile are integrated through the Portfolio Managers' views on future growth, returns on capital, and warranted multiple of the company.

Portfolio construction and risk management 

The portfolio typically consists of 40–60 stocks. Position sizes typically range between 1.0%-5.0% of the portfolio. Position sizes are a function of the Portfolio Managers’ perceived assessment of the range of outcomes, valuation versus intrinsic value range and versus other positions within the portfolio, stock characteristics (for example, volatility) and portfolio fit (for example, contribution to common factor tracking error). The Portfolio Managers have developed a tool in conjunction with the Risk function building on these inputs; they will use this tool to support the management of existing position sizes (providing nudges as a position evolves from its appropriate position size) and to help size new positions appropriately in the context of the broader portfolio.

The holding period of any stock is impacted by the speed at which market consensus adjusts and the longevity of market cycles. Stocks are exited when the investment thesis breaks or is altered materially, or has played out and the company’s value consistently exceeds our intrinsic value range or in favour of better opportunities elsewhere and for portfolio risk management purposes. Also, the holding is revaluated when the company no longer qualifies as sustainable investment under our framework, a change in business mix undermines sustainability / SDG thesis, there’s an adverse change in ESG characteristics / controversy without adequate remediation, or if the company fails to address ESG issues following engagement on material issues. 

In a stable market environment, the expected turnover of the portfolio will be approximately 30 - 40%. An average holding period of around three years allows for deep and constructive engagement with companies held in the portfolio, driving better sustainability outcomes. 

Risk management: At the stock level, the Portfolio Managers undertake a thorough analysis of the fundamental and ESG risk profile of the company and the investment thesis. They also monitor all ongoing developments with the help of our analysts. 

At the total portfolio level, the Portfolio Managers assess intra-stock correlations and focus on calibrating position sizes in order to avoid unintended factor exposures or concentration risks. They also manage the portfolio’s style exposure with a view to delivering strong relative returns across a range of market environments. 

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

Our risk oversight process also includes a Quarterly Sustainability Review (QSR) for sustainable funds. This review is supported an approximately 20-page data pack covering a range of ESG datapoints, including rating profiles and disparities (Fidelity and MSCI), engagement, voting, exclusions, carbon and climate data and Principle Adverse Impacts (PAIs). The QSR discussion is currently led by the Sustainability Team, in active dialogue with the Portfolio Managers, our Chief Investment Officer, the Investment Director, and data analysts. 

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

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

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

Active ownership

The Portfolio Managers aim for sustainability focused meetings with all companies held within the fund at least once annually, to deliver improved ‘real world’ sustainability outcomes as well as improved long-term outcomes for shareholders. The Portfolio Managers along with the analyst and sustainable investing analyst will engage with the companies where needed to monitor and encourage improvement in a company’s ESG performance (including any shortcomings identified during the research process). These interactions also help us identify best practices that can inform other engagements and our investment process. As part of our active ownership, we communicate our voting practices and discuss areas of divergence with our holding companies. Failed engagements on material issues will also result in divestment. 

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:

Sustainability Focus label

SDR Literature:

• Consumer Facing Disclosure