Sustainable, Responsible &/or ESG Policy:

The Fund invests at least 80% of its Net Asset Value in debt securities issued by companies and quasi-sovereigns that are incorporated, domiciled, or do most of their business activity in emerging markets, and are denominated in hard currency.

The Fund may invest in debt securities issued or guaranteed by emerging market governments or their agencies, local authorities, public authorities and supranational bodies and other debt securities denominated in any currency.

The Fund may invest in Chinese onshore debt securities denominated in CNY traded on the China Interbank Bond Market.

There are no credit quality restrictions applicable to the investments and the Fund may invest up to 100% of its Net Asset Value in below investment grade and unrated debt securities.

The Fund invests in securities that meet the ESG Criteria and Sustainability Criteria.

The following types of exclusions apply to the Fund’s direct investments:

• Norms-based exclusions: investments that are assessed to be in breach of commonly accepted standards of behaviour related to human rights, labour rights, environment and anti-corruption.
• Sector-based and/or values-based exclusions: investments and/or sectors exposed to business activities that are assessed to be damaging to human health, societal wellbeing, the environment, or otherwise assessed to be misaligned with the Fund’s sector-based and/or values-based criteria.
• Other exclusions: investments assessed to be otherwise in conflict with the ESG Criteria and Sustainability Criteria.

The Fund may invest up to 10% of its Net Asset Value in asset-backed securities and up to 10% of its Net Asset Value in contingent convertible debt securities. The Fund may invest in other transferable securities, cash, and near cash, directly or via collective investment schemes (i.e. UCITS and other UCIs including funds managed by M&G). The Fund may use derivatives for investment purposes, efficient portfolio management and hedging. These instruments may include, but are not limited to, spot and forward contracts, exchanged traded futures, credit default swaps, interest rate swaps and credit linked notes.

Investment Approach:

The Fund’s investment approach involves an in-depth analysis of corporate bond issuers from emerging markets. Given the nature of emerging markets, the analysis of corporate bonds and their issuers will be performed in conjunction with a detailed credit assessment of the relevant sovereign(s).

Sustainability considerations, encompassing ESG Factors, are fully integrated into credit analysis and investment decisions, and play an important role in determining the investment universe and portfolio construction. The Fund typically has a higher weighted average ESG rating and lower weighted average carbon intensity than the investment universe of emerging market corporate bonds. The Fund’s calculation methodology does not include those securities that do not have an ESG rating or carbon intensity data respectively, or cash, near cash, some derivatives and some collective investment schemes.

In order to identify securities for purchase, the Investment Manager reduces the potential investment universe as follows:

• The exclusions listed in the Investment Policy are screened out.
• The Investment Manager then assesses the ESG credentials of the remaining issuers. Based upon a combination of external ESG ratings and the Investment Manager’s assessment, lower scoring issuers classified as ESG laggards are excluded.
• From this narrowed investment universe, the Investment Manager performs fundamental analysis taking into consideration macroeconomic, sector, and company specific information, as well as analysis of corporate bonds and their issuers to identify and take advantage of mispriced bonds. The Investment Manager favours issuers with better ESG characteristics where this is not detrimental to the pursuit of the investment objective. This process typically results in a portfolio with better ESG characteristics.

Further information about the ESG assessment, scoring, and investment process can be found in the ESG Criteria and Sustainability Criteria.

Process:

In order to identify securities that meet the Fund’s ESG Criteria and Sustainability Criteria, potential investments undergo a three-stage process. The Investment Manager believe the approach outlined below strikes the right balance between maintaining a large and diverse selection of bonds within the portfolio and achieving a favourable ESG outcome.

Norms-based, sector-based and/or values-based exclusions

The first stage seeks to exclude companies or countries engaged in harmful or unsustainable activities.

The Fund excludes companies that are assessed to be in breach of the United Nations Global Compact principles on human rights, labour, environment protection and anti-corruption. This stage also excludes government bonds from countries classed as “Not Free” by the Freedom House index based on civil liberties, political rights, and press freedom.

The Fund also seeks to exclude companies with business activities deemed to be damaging to the environment and/or the wellbeing of society by virtue of the sector they operate in. The Fund implements screens to filter out companies involved in environmentally damaging and socially harmful activities.

Exclusion of poorer ESG performers

The second stage filters companies and governments according to their overall ESG credentials within this already restricted investment universe based on norms-based, and sector and values-based exclusions. The Fund seeks to exclude issuers considered to be ESG laggards based on the analysis of M&G’s external research providers and M&G’s in-house ESG assessment. The Investment Manager excludes any issuer that is classified as an ESG laggard by MSCI (ESG rating of B or CCC) and/or RepRisk (RepRisk Index of 60 or above), unless M&G’s in-house ESG assessment takes a different view.

The Fund may also invest up to 10% of its rateable net asset value in securities which do not have an external or internal ESG rating. This flexibility is expected to be primarily used for new issues, which have yet to have been assigned an external or internal ESG rating. In such instances, M&G’s ESG assessment will be based on the research of the Investment Manager’s in-house team of credit analysts and any such transactions will be documented with the investment oversight team.

Positive ESG tilt

The third positive ESG selection stage considers a range of ESG factors, including everything from energy efficiency and pollution to working conditions and product safety. The Fund has a systematic focus on businesses who more effectively manage their material ESG risks. Through this process, the Investment Manager promotes the inclusion of issuers with better ESG characteristics, subject to relative value considerations. The Fund will seek to identify climate transition leaders3, and consideration will be made to include ESG bonds, such as green bonds, social bonds, transition bonds, sustainability bonds or sustainability linked bonds.

As a result of excluding carbon-intensive industries like oil, gas, and thermal coal, and through the positive ESG selection process, the Fund will typically have a lower weighted average carbon intensity (WACI) than the investment universe of emerging market corporate bonds4 and will typically have a higher weighted average ESG rating than the investment universe of emerging market corporate bonds. The Fund’s calculation methodology does not include those securities that do not have an ESG rating or carbon intensity data respectively, or cash, near cash, some derivatives and some collective investments schemes.

Data sources:

We use third party research to aid in our internal ESG methodologies. The third party research forms part of our overall approach to internal ESG research. All our investment teams have access to this range of external ESG data providers, which ensures that the teams have sufficient ESG data and research that can be used by portfolio managers and analysts when engaging with companies on issues material to them.

Our analysts and investment teams also make use of external ESG content for a range of purposes. We have portal and data access with a number of ESG vendors, including MSCI, ISS, Sustainalytics and other specialist advisers.

In addition, we obtain ESG data through authorised aggregators or channels, including Bloomberg, Factset, Refinitiv Eikon and Aladdin. Our ESG Data Strategy records preferred vendors for particular coverage and subject matter requirements. The use of these vendors for different applications should balance the following requirements:

• Data quality and accuracy – whether the vendor’s products deliver accurate, actionable information in the context of the envisaged use case
• Breadth of coverage for particular asset classes

Resources, Affiliations & Corporate Strategies:

The central ESG team at M&G Investments is the Stewardship & Sustainability (S&S) team, which currently comprises of 32 M&G employees. Additionally, there are numerous ESG specialists across the floor, embedded in investment teams. At M&G we believe that ESG integration should occur in all parts of our investment business and to reflect this everyone has an objective to this end.

We look to continuously monitor S&S team resourcing levels to ensure the best quality of service is provided to clients. M&G will also ensure and make it the responsibility of all team members to keep up to date with the rapidly changing landscape of ESG to leverage resources effectively.

The S&S team works collaboratively, both directly and via the analysts, to equip managers to make better-informed decisions, knowing the full spectrum of ESG risks that could impact their portfolios, as well as where these risks may be concentrated within certain issuers or holdings. By working in conjunction with the credit and equity analysts on ESG, the S&S team is able to ensure that ESG risks and opportunities are considered throughout the full investment process, as well as in the monitoring of companies.

Rob Marshall, Head of Sustainable Investments at M&G Investments heads up the S&S team and research

Rob Marshall – Head of Sustainable Investments

Rob was appointed Head of Sustainable Investments in July 2022. Prior to that, Rob served as the Global Head of Research since 2019, responsible for leading M&G’s highly regarded Credit and Equity Research teams. During his time with M&G, Rob has worked as an analyst and credit practitioner across Public and Private asset classes.

Rob joined M&G in 2000. He previously worked as a senior analyst in European structured finance for the credit rating agency DCR, and later for Fitch Ratings. Rob holds a degree in Classics from Christ's College, Cambridge.

Rupert Krefting, Head of Corporate Finance and Stewardship

Rupert Krefting joined M&G in March 2016 and was appointed Head of Corporate Finance and Stewardship, Equities. Rupert has worked in investment banking for more than two decades. Most recently, he was at Numis, where he was a director in its corporate broking and advisory business for 8 years. Prior to his move to Numis, Rupert held senior roles at Investec and Panmure Gordon on the advisory side. He is a chartered accountant.

Ben Constable-Maxwell, Head of Sustainable & Impact Investment

Ben joined M&G in 2003 as a senior investment writer covering global and European equities, before joining the investment specialist team supporting the global equity desk. He is now Head of Sustainable and Impact Investing, responsible for sustainable investing at M&G and for developing M&G’s impact investment activities within our Equities business.

Ben has been central to the development of ESG integration within M&G’s investment processes and has supported the development of ESG client solutions across asset classes. He sits on M&G’s Responsible Investment Advisory Forum, which oversees ESG related activities at M&G, and is a member of the UK Investment Association’s Sustainability & Responsible Investment Committee, chairing the Working Group on non-financial disclosures.

Previous to M&G, Ben spent four years with the Equities team at Invesco Perpetual. Ben graduated from the University of Newcastle-upon-Tyne with an Honours Degree in Classics and has been on M&G’s Staff Charity Fund Committee since 2004. With the launch of the M&G Positive Impact Fund, Ben will be taking the Impact lead alongside fund manager John William Olsen.

John Vercoe

John joined as a Manager in the Policy and Disclosure team in January 2021 from 8 Miles, where he was the Head of ESG and Impact for Bob Geldof’s African Mid Cap Private Equity Firm. With 22 years of environmental and social risk experience, John currently Heads up Sustainability for Public Assets at M&G. John is a chartered environmentalist (C.Env), Member of the Institution of Environmental Sciences (M.IES) and Fellow of the Royal Society of the Arts (F.RSA).

The following is a list of Initiatives and signatories of M&G plc and M&G Investments:

M&G plc

• UN Global Compact
• TCFD
• TNFD Forum
• CDP
• ClimateWise
• ShareAction's Workforce Disclosure Initiative (WDI)
• National Equality Index
• Stonewall's Top 100 Employers
• Department of Work and Pensions - Level 3 Disability Confident Leader
• Say on Climate
• Powering Past Coal Alliance

M&G Investments

• 30% Club Investor Group
• Access to Medicine Foundation
• All Party Parliamentary Corporate Governance Group (APPCGG)
• CDP
• Climate Action 100+ (CA 100+)
• Climate Bonds Initiative
• Climate Bonds Initiative -  Climate Bonds Industry Working Group for Hydropower Investments
• Climate Bonds Initiative - Climate Bonds Industry Working Group for Bioenergy European Green Securities Steering Committee
• Climate Bonds Initiative - Climate Bonds Industry Working Group for Marine Renewable Energy Investments
• European Fund and Asset Management Association (EFAMA)
• FAIRR (Farm Animal Investment Risk and Return)
• Find it, Fix it, Prevent it
• Global Impact Investing Network (GIIN)
• Green Bond Principles
• IA (Investment Association )
• IA Corporate Reporting and Auditing Group (CRAG)
• IA Remuneration and Shares committee
• IA Responsible Investment committee
• IA Stewardship & Governance Committee
• IA Stewardship Reporting Working Group
• Impact Management Project (IMP) [Now Impact Management Platform]
• Institutional Investors Group on Climate Change (IIGCC)
• International Corporate Governance Network
• Investor Forum
• Net Zero Asset Managers Initiative
• Pre-emption Group
• Transition Pathway Initiative (TPI)
• UK Stewardship Code 2020
• UK Sustainable Investment and Finance Association (UKSIF)
• UN PRI

SDR Labelling:

Not eligible to use label