ESG philosophy:

As fiduciaries, our focus on long-term shareholder value obliges us to look at Environmental, Social and Governance (ESG) issues as part of our overall mission: improving people’s lives through successful investing. Put simply, we believe a company’s ability to align its business strategy with evolving societal expectations is essential to long-term value creation. Understanding the changing tides in government policy and social expectations can be a key driver for successful outcomes. As a result, we analyse ESG issues in an integrated way – alongside other financial and business indicators – as part of our core investment process.

Our analysts and portfolio managers share a singular focus on helping clients reach their risk and returns objectives. We believe that the increasingly complex field of ESG practices are essential ingredients of long term investment outcomes. This is why for us ESG is a natural part of our selective, bottom-up driven investment process. Our investment professionals construct portfolios from the bottom up by picking companies based on ideas generated by our in-house analysts. These analysts are given sectors to cover over time and are expected to follow the companies in their coverage for many years — and in so doing, to build up deep relationships and knowledge of these companies at many levels.

In-house research coupled with a long-term investment horizon and rigorous engagement instructs our understanding of key risks and opportunities – including regulations, societal changes, use of natural resources, and other ESG factors. We assess and incorporate these important insights alongside financial and other metrics.

Historical overview:

Over many years we have developed The Capital SystemSM approach to investment which along with our code of ethics and culture of long-term investing, ensures a robust investment process which recognizes the relevance of diverse perspectives and ESG factors in contributing to long-term sustainability. Specifically, while our integrated approach to ESG is not new, we have been working on re-formulating our four-step investment framework MADE, which we completed in Q2 2018. Our investment process is designed to provide a forum to debate new ideas and trends. Our in house governance expertise and decades of documented company engagements helps us navigate the changing tides of policy and practice in ESG. With this in mind, we have been focused on developing a more systematic approach to conduct company engagement and proxy voting on ESG issues. Specifically, we have been working on a clearer internal structure for recording and monitoring ESG engagement and improving our understanding of carbon risks within our portfolios. A cross-functional team of analysts and governance associates have analyzed 585 environmental and social proposals on which we voted since 2014 to develop enhanced guidelines going forward.

In July 2018, we appointed a Global ESG Investment Director to lead the ESG effort firm wide and coordinate initiatives in the investment groups, investment operations and client facing teams. We are also increasing our involvement in industry associations on ESG topics. This marks an increased emphasis at Capital Group on ESG investing as an integral part of our mission to improve people’s lives though successful investing while building on our historical commitment to the principles of stewardship.

Since bondholders do not have the proxy voting voice, engagement is the key tool for active stewardship. In the context of developing additional stewardship tools, recently introduced a ‘screen and engage’ methodology in our global corporate bond portfolio currently available asLuxembourg-domiciled funds. This is to facilitate monitoring of controversies and assist analysts in engagement. ESG norms-based screening makes our usual process of engaging with issuers on key issues more explicit.

Finally, we are exploring new ways to employ ESG screens in sovereign bonds’ universe without politicizing our investment process. The objective is communicate better around how we integrate governance factors, environmental risks and social issues like education, healthcare and freedom of the press.

Improvements in our ESG framework have been mainly focused on sharing information about best practices and tracking engagement activity that is carried out by our investment analysts. We have put in place processes to capture and communicate more and more this activity, where possible.

UN PRI signatory:

Capital Group has been a signatory to the United Nations Principles of Responsible Investment since 22 February 2010. The UN PRI reflect the increasing relevance of environmental, social and governance issues to investment practices, and we are committed to adopting and implementing the principles where they are consistent with our fiduciary responsibilities.

We are a research-led discretionary investment manager with a bottom-up investment process focused on delivering superior, long-term sustainable returns for our clients. The Capital System SM approach to investing, which, along with our Code of Ethics, and culture of long-term investing, was developed over many years and is designed so that individual investment professionals act on their highest convictions, while limiting the risk associated with isolated decision-making. This robust investment process and our long-term focus affords us the opportunity and ability to consider the long-term drivers of a business or industry, looking past the short-term issues whilst continually assessing the current and future prospects of
the businesses and industries in whom we invest.

ESG factors often are drivers in contributing to long-term sustainable business success. Where these ESG factors are material they will be considered alongside the financial, operational and economic indicators in our fundamental analysis and valuation of companies. Our investment analysts are sector specialists and have the depth and breadth of knowledge which enables them to identify those ESG risks, and opportunities, that are material to the business and which are often intrinsic to building an understanding of a company’s business model or a sectors prospects. Our research approach is naturally leads to opportunities to engage with companies.

Our analysts and portfolio managers collectively make thousands of company visits annually, and regularly meet with the management of companies. This enables them to engage with companies on any issues of concern. We believe that our integration and engagement approach is consistent with the Principles of Responsible Investing.

Capital’s investment professionals are supported by our in-house Governance and Proxy (GAP) team. The GAP team consists of 20 associates who have considerable experience in voting and governance as well as in understanding and engaging on environmental and social issues. The main duties of the team include: voting at company meetings in every market on behalf our clients, monitoring and assisting our investment professionals with engagement work on ESG-related issues (especially as they relate to the UN Global Compact screening and, together with the analysts, engaging with companies to promote best practices). In addition, investment professionals alongwith the GAP team, Legal and Marketing departments regularly discuss industry and company developments at internal meetings.

Category
ESG-Officer	x
UN PRI	x
ESG-Company Report	x
ESG (Company) Rating	x

Asset Classes
Equities	x
Fixed Income	x
Convertible Bonds
Real Estate
Multi Asset	x
Others

Methods
ESG Intergration	x
Best in Class
Exclusion Criteria
Positiv Screening
Impact Investing
Engagement / Active Ownership	x
Minimum
ESG Reporting