Sustainable, Responsible &/or ESG Policy:

The fund aims to invest in entities whose activities or ways of operating are aligned with sustainable development and which we believe have the potential to support the achievement of the UN Sustainable Development Goals (SDGs).

To do this the fund:

• Integrates ESG factors into risk management and stewardship activities.
• Applies negative screening to avoid investments that are failing to effectively manage potential social or environmental harms.
• Applies positive screening to identify investments that are aligned to one or more sustainable development themes.

A short summary is provided below of some of the criteria applied to key asset classes. For further detail, see the Rathbone Greenbank Global Sustainability Fund Sustainability Process Brochure.

Equities

Companies are assessed against a number of positive and negative top-level social and environmental criteria. The team analyse in detail the specific merits of each company’s individual activities and sustainable business practices.

The exclusions and negative screens

The funds apply screening criteria to avoid investing in companies creating significant negative impacts that are considered to be incompatible with sustainable development.

The funds shall exclude companies in breach of specific criteria related to one or more of the following:

• Alcohol
• Animal welfare: animal testing
• Animal welfare: fur
• Animal welfare: intensive livestock farming
• Armaments
• Climate change
• Employment
• Environment
• Gambling
• Human rights
• Nuclear power
• Pornography
• Tobacco

The positive sustainability criteria

We believe that companies displaying strong policies and practices with regard to environmental, social and governance issues are likely to be well-positioned to deliver long-term value creation for investors.

In order to qualify for inclusion in the funds, companies that pass the negative screen must also display leading or well-developed business practices and policies (operational alignment), and/or allocate capital towards the provision of products or services aligned with sustainable development (activity alignment).

In September 2015, the UN launched the SDGs. These comprise 17 goals, with 169 underlying targets that aim to ‘end poverty, protect the planet and ensure prosperity for all’ by 2030. The SDGs provide a comprehensive framework for international action on the many social and environmental challenges facing the world.

Greenbank have mapped the SDGs to a set of eight sustainable development categories and a number of underlying sub-categories. These categories ultimately align with the same ambitions as the SDGs, but focus on the areas most relevant to companies. We use these categories to determine how successful individual companies are at translating aspirations into tangible results.

• Energy and climate: Support decarbonisation aligned to the goals of the Paris Agreement on climate change.
• Habitats and ecosystems: Preserve and enhance natural systems by encouraging companies to have a net positive impact on biodiversity.
• Resource efficiency: Promote a circular economy that supports sustainable levels of consumption.
• Inclusive economies: Promote an equitable economy in which there is expanded opportunity for shared prosperity.
• Decent work: Ensure proper emphasis on the quality of jobs being created and maintained alongside their quantity.
• Innovation and infrastructure: Support infrastructure that is fit to achieve broader planetary and societal goals.
• Resilient institutions: Strengthen well-functioning institutions that protect the rule of law and fundamental rights.
• Health and wellbeing: Ensure companies do not undermine the health of their beneficiaries and encourage improved health outcomes.

Operational alignment

Our focus is on three principal areas of operations: employment, environment and human rights. If a company is to be aligned to one of the eight categories based on operational alignment, it must display positive action which is well developed and leading across one or more of these areas.

Activity alignment

We analyse whether companies have significant involvement in the provision of products or services aligned with sustainable development. Essentially, we are asking whether companies are allocating capital in alignment with any of the SDGs, and if this practice is central to their business models.

Process:

The fund manager has a quality bias in the fund, this includes the application of a quality and value screen to define the opportunity set available to the fund manager. The fund manager defines a business as being high quality as those demonstrating strong cash flow returns, a durable franchise and effective capital allocation. The manager applies a risk process to the stock selection process which considers, price, financial and business risk, detailed further below. The first step in the investment process is identifying companies displaying the characteristics we look for in durable franchises.

This is founded on our core investment principles:

• A clear, rational and repeatable investment process is vital for investment success over long time periods
• Over time, share prices will reflect the intrinsic value of the business
• Stock market prices fluctuate more than underlying business values
• A long-term perspective is essential to take advantage of share price volatility
• For above-average results, investors must think and act differently to the rest of the market
• Risk is defined as a permanent loss of capital, and usually comes from overpaying for assets, or misjudging company finances or fundamentals
• A conservative approach will include a margin of safety to minimise the risk of permanent losses
• By buying and holding investments that pass our strict investment criteria, investors should benefit from the compound growth in capital and dividends
• All investors (fund managers in this case) will perform poorly from time to time

We take a risk based approach, defining risk as the threat of a permanent fall in the value of our investments. Risk is not viewed as volatility, illiquidity, deviation from a benchmark, or underperformance.

We use a framework focusing on three key areas and how they impact on this:

• Business risk – deteriorating earnings power
• Financial risk – inappropriate levels of debt
• Price risk – overpaying for an investment

Ultimately, we view the value of an investment as the present value of future cash flows. The three areas above allow us to evaluate an investment opportunity, the first two allow us to take a view on the likelihood of achieving the expected future cash flows, and the third the price we are paying for their value. We look to balance all three, with, for example, the more secure and predictable the cash flows (the lower the business/financial risk) the less margin of safety we require (higher price risk) and vice versa. There is no one particular permutation we are looking for but assess each opportunity on its individual merits.

The fund uses a stock screen at initiation of research, purchase, and ongoing portfolio monitoring. There a three key metrics using external data sources and additional internal research built into the screen addressing company quality, value, and momentum. Each company is scored from 1-10, 1 being poor and 10 highlighting an excellent opportunity.

Quality – considers a company’s ability to generate strong recurring cash flow over the course of a market cycle.

Value – Considers the valuation of a company. The manager looks at the value of a company based on its relative valuation to the sector, historic averages, forward earnings and on an absolute basis.

Momentum – The manager looks to understand the driver for momentum within a business including its current price and cash flows. They want to understand how sustainable the momentum.

.
Research

For equity research, there is a very strong emphasis on in-house research. The investment team undertake their own stock and industry analysis. Whilst this will be supplemented by external sources of research, home-grown ideas and themes are valued highly.

The investment process has been developed over many years, and every member of the team understands that an investment rationale has to be framed within certain lines of argument: - trinity of risk (price, business, financial) with a firm understanding of cash returns on invested capital. Thereafter, the individual is free to come to his or her own conclusion.

Whilst much third-party research is discarded as being biased or corporate led, there are some sources that are held in high regard. This can be especially useful in understanding the wider industry. We can also benefit from research demonstrating views which oppose our own. We are open to challenge and understanding differing views and expectations can improve our own analysis and outcomes. Elsewhere, Rathbones pays for economics and strategy research from several independent groups, in addition to in-house teams.

Idea generation is developed through the ecosystem of existing holdings by assessing their supply chains, competitors and those likely to benefit from improved company performance. The manager also uses external research for idea generation by engaging with external analysts and sell side conferences. For both new and existing holdings the fund manager makes every effort to meet with company management on regularly.

Finally, the team is also in a position to leverage intellectual capital from across the Rathbones Group in terms of utilising the various committees (stock selections, collectives, overseas equities, amongst others), analysts and the internal and external research available.

Sustainability screening

Once an investment has been researched and deemed suitable for the funds from a financial perspective, it then needs to be scrutinised in line with pre-determined sustainability criteria. These criteria have been agreed between the fund managers and the team at Greenbank Investments (Greenbank), who will be the final arbiters. The fund managers may propose an investment, but Greenbank has the power of veto if the investment fails to meet the sustainability criteria.

New investments that are considered suitable for the funds are investigated as requested by the fund managers and subjected to the team’s screening process. The team looks to update all of its in-depth company profiles on a 12-18 month cycle. A full review of the fund’s eligible investment universe will be carried out an annual basis ahead of a formal annual review meeting.

The fund’s holdings are monitored regularly, and reviewed in the light of any relevant news, merger and acquisition activity or findings from ongoing analysis. As new governments are elected, or companies change their activities, merge with others or develop new policies and practices, their sustainability credentials may alter. The Greenbank ESI research team works closely with the fund managers to highlight changes in sustainability performance and ensure that the funds only hold approved investments.

Divestment on sustainability grounds is likely to be uncommon, as investments we hold are unlikely to change their ‘spots’ overnight. If the activities of a company change, such that it is no longer suitable for the funds, the fund managers would normally seek to sell the holding within three to six months.

Finally, stewardship forms an essential part of our approach to responsible investment. Stewardship is a crucial fourth leg to the process and involves the participation of both the fund managers and a dedicated corporate governance team when scrutinising policies and management teams. Again, more detail can be found in the sustainability process document which is available on Fund EcoMarket and our website.

ESG data

The team utilises several resources including:

• MSCI ESG ratings and research: measures a company’s resilience to long-term, financially relevant ESG risks and opportunities
• Sustainalytics ESG risk ratings and research: measures the magnitude of a company’s unmanaged ESG risks
• Industry ESG conferences and company meetings: provide information on both sector-wide and company specific ESG or sustainability issues
• ESG research/comments from internal and third-party analysts: provide additional insight into any relevant ESG issues affecting potential investment opportunities
• Weekly sustainability news flow: provides weekly news on material sustainability issues and topics across holdings

To apply the sustainability criteria, the ESI research team use MSCI ESG Manager as a tool to help identify which companies we need to screen out of our portfolios for not meeting our exclusionary criteria. The screening tool looks at companies’ revenue exposure or ESG score to different areas we screen out and flags if there is a breach.

In addition to the reporting outputs from companies themselves, the Greenbank team uses a variety of sources, including reports and publications from industry groups, non-governmental organisations, sell-side analysts, external research bodies and specialist responsible investment publications, to arrive at a balanced view of companies’ overall performance. Some examples of sources of information include the Workforce Disclosure Initiative, Access to Medicine Index, Access to Nutrition Initiative and CDP (Carbon Disclosure Project). Since June 2015, the team has also subscribed to MSCI ESG Manager to reinforce this process, utilising tools such as their SDG alignment tool, as an initial starting point for their analysis in some cases. Greenbank also conducts research into wider topics such as climate change, clean energy, human rights, community investment and employee welfare and utilises this research when conducting the sustainability screening for the funds.

For further detail please see the Rathbone Greenbank Global Sustainability Fund Product Brochure.

Resources, Affiliations & Corporate Strategies:

David Harrison is the lead manager of the fund, and he is supported by Neil Smith sustainable investment analyst, Siyuan Lin, senior global equity analyst and Michael Cumberlidge, equity investment specialist. Importantly, they are supported by a wider investment team with over 100 years of combined investment experience, a team at the very core of the investment process upon which the fund is established. The team approach is crucial. It orchestrates a challenging environment in which our managers test investment ideas through a form of peer review. It also creates a natural diversification because different people are interested in different things, but the core process means all these ideas are explored in the same way. Finally, work is not duplicated – trust in each other and the process breeds efficiency.

The proposition is further strengthened by the team’s dedicated ethical investment research department, Greenbank Investments, which is responsible for applying the ethical research required for this fund.

For the biography of the fund manager please visit: https://www.rathbonesam.com/uk/financial-adviser/equities/rathbone-greenbank-global-sustainability

Greenbank Investments’ ESI Research Team

Greenbank Investments’ specialist Ethical, Sustainable and Impact (ESI) Research Team conduct ethical research and apply the fund’s ethical screening criteria. The team at Greenbank have been at the forefront of developments in the ethical investment industry since 1992, launching one of the first bespoke ethical portfolio services in 1997. The fund’s ethical and sustainability framework and methodology have been developed with Greenbank, utilising their many years’ experience of managing private client portfolios as well as providing screening services for the other Rathbones’ sustainable funds (including Rathbone Greenbank Multi-Asset Portfolio funds, the Rathbone Greenbank Global Sustainability Fund and the Rathbone Greenbank Global Sustainable Bond Fund).

Kate Elliot is Head of Greenbank Research, which comprises:

• Sophie Lawrence - Stewardship and Engagement Lead
• Kai Johns - Senior Ethical, Sustainable and Impact Researcher
• Charlie Young - Ethical, Sustainable and Impact Researcher
• Lauren O’Leary - Ethical, Sustainable and Impact Researcher
• Caitlin Westlake - Assistant Ethical, Sustainable and Impact Researcher

For biographies for the team please visit the Our People page on the Rathbones website.

Rathbones Stewardship team

The Rathbones Group Stewardship team is led by Matt Crossman (Stewardship Director) and comprises:

• Archie Pearson - Stewardship Lead
• Philippa Bliss –Stewardship Lead
• Sonia Amrat-Nath – Stewardship Lead
• Tilia Astell - ESG & Stewardship Analyst
• Kazuki Shaw - ESG & Stewardship Analyst

In addition to this, Jenny Foster is an Engagement Analyst for Rathbones Asset Management, working with all of the fund managers to deliver Rathbone Asset Management's engagement strategy and lead direct engagements with companies.

Governance and Stewardship

An important aspect of sustainable investing for the Rathbone Greenbank Global Sustainability Fund is our approach to corporate governance and stewardship. As a signatory to the UK Stewardship Code, we are mindful of our responsibilities to clients and seek to be good, long-term stewards of the investments, which we manage on their behalf. The companies in which the fund invests must adopt best practice in corporate governance as we believe that doing so provides a framework in which each company can be managed for the long-term interests of its shareholders. Rathbones has developed a core set of guiding principles, which apply to our stewardship and governance-related activities:

• Materiality – we recognise that governance and stewardship risks can be materials to the performance and valuation of companies.
• Engagement – active engagement with companies on governance issues, including writing to companies when voting against management, outlining our specific concerns.
• Active Voting – we actively vote all shares held within the Rathbone Greenbank Global Sustainability Fund except where local regulations make voting impractical.
• Transparency – we will report annually on our stewardship activities.

Proxy Voting

The Rathbone Greenbank Global Sustainability Fund approaches each company meeting on a case-by-case basis using a combination of established best practice for each market and knowledge of the particularities of each company to reach a decision. In addition to this, the fund benefits from a sustainability-themed voting overlay. This ensures that voting on fund holdings will be consistent with the values of the fund and its sustainability criteria. The default position is to vote in favour of social and environmental proposals that seek to promote better disclosure and good corporate citizenship, while also enhancing long-term shareholder and stakeholder value.

ESG affiliations and memberships

Rathbones Group is a member of PIMFA and UK Finance. They participate in and are members of or signatories to:

• UK Stewardship Code
• PRI
• CDP
• IIGCC
• Climate Action 100+
• Living Wage employer
• The Workplace Wellbeing Charter
• The FTSE Women Leaders Review
• The Parker Review
• Signatories to UN Global Compact
• Signatories to Women in Finance Charter
• Listed on FTSE4Good
• Net Zero Asset Managers Initiative
• Inclusive Companies
• UKSIF

Please see the Rathbones website for further details 

Greenbank (Rathbones’ specialist sustainable investment division) partners with many different members of the responsible investment community. These are shown below:

• Ecumenical Council for Corporate Responsibility (ECCR)
• The Food Foundation
• Access to Medicine Index
• Access to Nutrition Initiative
• Finance for Biodiversity
• Business Benchmark on Farm Animal Welfare (BBFAW)
• Long-term Investors in People’s Health – ShareAction
• FAIRR
• CCLA Mental Health Investor Coalition
• Business Coalition for a Global Plastics Treaty
• Investor Coalition on Food Policy

Please see the Greenbank Investments website for further details at: Partnerships | Greenbank

SDR Labelling:

Sustainability Focus label

SDR Literature:

• Consumer Facing Disclosure