Sustainable, Responsible &/or ESG Policy:

Sustainable investment philosophy

We consider sustainable investment to be about investing with a clear intent to deliver environmental and/or social outcomes alongside generating a financial return. The strategies that follow the Newton sustainable investment framework seek to balance financial, social and environmental outcomes to support long-term shareholder returns.

Sustainable investment framework

This framework is focused on two main components: defining what is incompatible with a sustainable universe --‘sustainable investment restrictions’ and defining what constitutes a sustainable investment. The latter rests on an approach that focuses on key sustainable investment themes with underlying sustainable activities and how an investment is connected with this – through alignment or contribution measures.

Sustainable investment universe

The portfolio manager is responsible for applying the Newton sustainable investment framework and ensuring that the security is eligible following a review which is documented. The review determines whether the investment contributes towards one or more of the Newton sustainable investment themes (sustainable contributors) or demonstrates strong environmental and/or social practices that align with one or more of the Newton sustainable investment themes (sustainable aligners).

Sustainable contributors: These are companies that provide solutions (products and services) that address the most pressing environmental or social challenges. Our sustainable investment framework is applied through a series of measures, such as revenues from products relating to Renewable and low-carbon energy sources, resource efficiency, affordable housing, medical technology and healthy eating. As a measure of their contribution, each sustainable contributor must have at least 30% revenue exposure (in aggregate) from one of more of the sustainable activities, as defined in the sustainable investment framework, or have at least 30% capital expenditure (CAPEX) or operational expenditure (OPEX) aligned to the EU Taxonomy.

Sustainable aligners: These are companies that manage to a high standard the social and environmental issues relating from their direct operations and supply chains as well as integrate sustainability priorities into their business strategy. This is primarily about the internal management of a company’s operations and supply chain where we seek to invest in leaders or best-in-class industry players. Companies that integrate sustainability into their business strategy have committed explicitly to improving their environmental and social impacts by reducing negative externalities that is expected to lead to a transformation of their business models. The outcome of this mitigation and transformation of the negative externality results in a meaningful positive outcome for society and/or the environment.

These two classifications are guided by frameworks, developed, and maintained by the Newton RI team, ensuring robustness and consistency in order to identify the suitable sustainable investment propositions. The overall framework is reviewed regularly and may evolve over time with Newton’s own thinking as well as with regulatory development.

Sustainable investment restrictions*

The sustainable investment restrictions mainly seek to avoid investments in areas of significant social or environmental harm. These restrictions cannot be overridden.

Here we seek to avoid investments involved in areas of high negative externalities, those that cause significant long-term societal harm, investments that have been identified as having severe controversies and/or violating one or more of the ten UN Global Compact Principles covering areas including human rights, labour practices, corruption and the environment. We do not believe that exposure to such activities is aligned with our sustainable investment framework.

To identify these companies, we use a combination of external service providers including Bloomberg, ISS, RepRisk, CDP and Factset to inform our decisions. The sustainable investment restrictions are hard coded into the Newton trade process and any potential violations are caught in the pre-trade compliance checks. Revenue threshold parameters applied through these restrictions reflect just one part of our sustainable investment framework – a key part of this process is the additional research and analysis conducted by the investment team.

Note: 1 Some strategies following the Newton Sustainable Investment process may choose to add to these exclusions – but may never subtract.
Source: Newton, 30 January 2025.

However, please note: revenue threshold parameters reflect just one part of our sustainable investment process – a key part of this process is the additional research and analysis conducted by the investment team.

Our process seeks to clearly distinguish between activities that are subject to hard exclusions versus those activities that sustainability portfolio managers may be able to invest in in certain circumstances (precautionary pool).

Precautionary pool

For areas that have been identified as having controversies or the potential to cause harm (such as fossil fuels other than thermal coal, animal welfare, conventional defence and nuclear power) but are not covered by the sustainable investment restrictions, portfolio managers are alerted, when considering such investments, to review the controversial activity through what is referred to as the 'precautionary pool'. The precautionary pool includes companies that have been flagged in relation to their involvement in heavy-emitting industries, hold exposures to activities that are restricted, but at lower revenue thresholds, and areas such as nuclear power and animal welfare, where there may be nuances in the investment case that are deemed important to be highlighted.

The full list of activities caught currently under the precautionary pool is included below:

Note: 1 The RI team maintains a list of companies that are tagged under the ‘precautionary pool’. Portfolio managers are alerted to this pool in the sustainable investment documentation portal (the Newton ‘RI App’). The portfolio managers are encouraged to work with the RI adviser assigned to the portfolio, to ensure that the managers are comfortable that the investment is not in conflict with the objectives of their strategy.
Source: Newton, 30 January 2025.

Bonds

Market participants and credit rating agencies have been placing increasing importance on non-financial factors in determining credit ratings, and understanding default risk on the debt issued by sovereigns. We believe a country’s competitiveness is dependent on the availability and quality of economic, natural, human and institutional capital. Countries that allocate and act as stewards of these capital resources effectively are likely to experience stable long-term growth and show more economic resilience. We evaluate factors such as natural resource depletion, social cohesion and advancement, conflict and institutional strength in order to understand if the returns on offer from sovereign debt are justified given the risks attached.

Since we believe that the durability of a sovereign bond relates to a number of factors we seek to gain a holistic view of a country, taking into account the various positive and negative factors. We consider data from a range of sources including the World Bank, Transparency International, IMF, Yale University, Notre Dame Institute and others.

We do not apply thresholds when assessing each individual data source, but instead use relative thresholds at the aggregated data level. There are two parts to the calculation – one is the overall score and the other is the momentum. While the score is on a relative basis, momentum is fundamental in nature. All of the indicators are classified into the four capitals mentioned above and then are combined to calculate results at the country level. The country level score and momentum for all countries are categorized into three parts (For Score – Strong, Average and Weak, For Momentum – Positive, Stable and Negative) which then allows for these countries to be allocated into a 3x3 matrix. Each quarter, the model is reviewed by the fixed income and RI specialists to assess whether current affairs have changed our outlook described within the matrix.

Those countries rated ‘weak’ and which do not have positive momentum cannot be included in our sustainable investment strategies. Those countries rated ‘average’ (irrespective of momentum) and ‘weak’ with positive momentum can only be included in the sustainable strategies subject to further work being completed by the sovereign specialist and subsequently agreed by the RI team.

Resources, Affiliations & Corporate Strategies:

Newton has a centralised responsible investment team. This team is the centre of excellence for all matters related to responsible investment, and with its deep functional knowledge of the responsible investment space and how it is evolving, it provides guidance, support and subject-matter expertise to our wider investment team. The responsible investment team, as you can see below, is global in its footprint and diverse in its employee base. The team is organised into three pillars of expertise – stewardship, research and analytics: these specialisations under the responsible investment umbrella allow us to bring further depth and expertise to each of these activities. The team’s compact size enables it to work cohesively and operate as one team.

Stewardship: Oversees the firm’s engagement framework and advocacy initiatives, focusing its efforts on meaningful outcomes for clients, and also undertakes the firm’s proxy voting activities. Provides subject-matter expertise to the investment team on governance risks and evolving expectations.

Sustainability research: Subject-matter experts consulting the investment and research teams, driving deep insights on sustainability-related subjects. The team manages Newton’s sustainability standards, definitions and frameworks.

Responsible investment analytics: Has strong quantitative and RI data expertise and owns the data ecosystem, creating and managing responsible investment data models, frameworks and tools that support ESG integration and sustainable investing. The team has built an innovative suite of building blocks that can be leveraged to develop scalable solutions to meet specific client requirements.

The role of the responsible investment team is to be a support function to the investment teams, to set standards around sustainable investment, and to coordinate and ensure effectiveness around our stewardship efforts. It guides the business around policies and direction of travel for sustainability and stewardship more broadly. The responsible investment team also owns and manages the overall governance systems to ensure we deliver against key codes and commitments including stewardship codes, industry principles such as the UN Principles for Responsible Investment, and industry pledges such as the Net Zero Asset Managers Initiative (NZAMi).

Supporting the team, and the wider business, are various external organisations and vendors including ESG service providers, memberships, and internal systems for monitoring and reporting.

Affiliations
As investors and an intermediary in the financial system we play an important role in providing investors with access to investment solutions, and that with this comes an inherent responsibility to do what is right on behalf of our clients, as well as wider asset owners and stakeholders in the financial system. Our advocacy focus involves supporting or seeking to influence various issues and areas for the long-term interest of our clients and Newton.

Organisations and initiatives related to responsible investment matters in which Newton plays a formal role:

*Newton Japan was established as a legal entity in March 2023. Its prior commitment to the Japan Stewardship Code was under its previous structure.

ESG Governance

Having an effective management and governance framework is an important part of our overall business strategy. As investors, we understand the value of effective leadership and accountability. This is closely linked to the culture of our business, as leadership and accountability have equal importance in Newton’s governance. We have therefore established appropriate governance systems and controls to support our stewardship and RI policy. This policy is reviewed and approved by the Newton Sustainability Committee (NIM and NIMNA), which reports to the Newton Executive Management Committee (NEMC) (to note, the NEMC reports into NIM and NIMNA boards). The policy is also reviewed and approved by the NIMJ Investment Oversight Committee, which reports into the NIMJ Executive Management Committee. The NEMC has overall responsibility for defining Newton’s approach, values and actions across all Newton entities.

Two of our operating committees play important roles in relation to our stewardship and RI efforts:

• Newton Sustainability Committee – oversees all aspects relating to stewardship and RI at NIM and NIMNA, including our investments, direct impacts and engagement with communities, and engagement with the wider market (advocacy) regarding RI and stewardship matters.
• Newton Risk and Compliance Committee – supported by the Newton Conflicts of Interest Committee and the Emerging Risks Working Group.

These committees deal with various stewardship and RI aspects on an ad-hoc basis, including any relevant internal audit findings and actions as well as climate-related risk updates from internal groups.

Our Board Risk Committee also plays a role in the governance of our RI and stewardship efforts; it acts as an escalation point for any material issues identified through our governance systems and controls. For example, it has previously considered materials related to climate risk. We have also established the Newton Sustainable Investment Forum (SIF) as an oversight group to monitor our strategies with sustainability characteristics.

The role of the SIF is to:

• Foster debate by bringing together a wider set of Newton investment team members focusing on sustainability, including sustainability portfolio managers and RI team members
• Provide support by educating, training and sharing knowledge and insights among the investment team.

SDR Labelling:

Unlabelled with sustainable characteristics (has CFD) (under review)

SDR Literature:

• Consumer Facing Disclosure