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ENGAGEMENT REPORT20

20

ContentsENGAGEMENT HIGHLIGHTS 3

A LETTER FROM ETHICAL PARTNERS 4

ETHICAL PARTNERS INVESTMENT PRINCIPLES 6

WHY IS ENGAGEMENT SO IMPORTANT TO US? 7

ENGAGEMENT SUCCESS 9

VOTING - CLIMATE AND HUMAN RIGHTS RESOLUTIONS 10

KEY FOCUS AREAS 11

ENGAGEMENT ON PLACE - COUNTRY RISK 12

OTHER ENGAGEMENT EXAMPLES 13

COMPANY EXAMPLE: ANZ 15

COMPANY EXAMPLE: BEGA 16

BROADER ENGAGEMENT- COLLABORATING ON CHANGE 17

ENGAGEMENT PROJECT: TAX 19

CURRENT COVID-19 ENGAGEMENT FOCUS 20

SIGNATORY TO 20 MAJOR INVESTMENT COLLABORATIONS 21

CURRENT AND FUTURE ENGAGEMENT PRIORITIES: 22

2 www.ethicalpartners.com.au

All Engagement plan completed for companies

500+ Company meetings since inception

300+ Engagement Issues raised with listed companies

600+ Data sources utilised in our Investment Process

100% Of the top 200 companies covered

216 Resolutions voted on during 2019/20

100% Percentage of climate and human rights resolutions supported during 2019/20

AllStaff remuneration tied to Ethical Partners values of accountability, responsibility, confidence to be different

$1500M+ FUM focused-on Responsible Investment

Direct Ethical Partners board involvement in discussions and outcomes

17NGO’s, Advocacy Groups, Civil Society, Academic or Policy Groups regularly collaborated with

Expert In-house and external training for our team

20Our public commitments: No. of Signatories to major investor collaborations

100% Of SDGs covered by our engagements

Engagement Highlights

Ethical Partners Funds Management 3

A letter from Ethical PartnersWelcome to the inaugural Ethical Partners Engagement Report. It details our investment principles, our company engagement and advocacy record since inception, our voting record, and our focus points amongst current and emerging environmental, social and governance (ESG) issues.

Ethical Partners has a disciplined and consistent investment process, of which our propriety EPORA process is an integral part. As a crucial part of this, Ethical Partners has a strong record of meaningful and successful company engagement, as this report will detail.

Ethical Partners is also an active investor. But what does active investing mean to us?

Firstly, it means we take large portfolio positions that are different to the market index, where we can identify opportunities.

Secondly, we believe that active ESG investment means that we engage meaningfully on ESG, with each and every company, before we make an investment, and throughout the time we hold the stock.

Being an active investor means that companies do not make it into our client portfolios by accident, based on a market index or a computer model.

But being an active investor also means a rigorous schedule of company meetings where our team makes our views known to companies, on a wide variety of engagement topics, as this report will outline: from human rights issues, to modern slavery, to governance and asking boards and management to be accountable for mistakes, to asking companies to interact responsibly with their stakeholders, to appropriate climate change targets and environmental protection, to data, to plastics, to COVID protections - in fact, on over 300 issues raised with companies.

We are also prepared to talk publicly about these issues, whether with civil society groups, NGO’s, shareholder advocacy groups, the government, industry bodies or the media where appropriate. In fact, at Ethical Partners, we see this as a responsibility, and a privilege, to leverage our shareholder voice to call for change, and be part of advocating and influencing Australian corporates to better address their ESG footprints.

When 67 of the top 100 revenue gathering entities globally are corporations, many play larger roles in society than governments, making the voices of all stakeholders, including and importantly investors, crucial to keeping corporations accountable to the world we all live in. Furthermore, we believe there is a strong alignment between corporations acting responsibly and sustainably and owners’ long-term returns, and as such there is an important role for shareholders to help ensure companies put improved practices in place or make appropriate changes where behaviour has fallen short of expectations.

To summarise, determining which companies are leading in this regard, represent the best opportunities for change, and leveraging our shareholder voice to influence the course of this change is what we believe the concept of active investing should include, and is where we believe ESG investing is headed.

Finally, we firmly believe that Ethical Partners values of responsibility, accountability, and having the confidence to be different represent our commitment to remain an active investor, who is both willing to have a view, and to engage actively with companies to put our views into action.

Yours sincerely,

Matt Nacard Robyn Parkin

CEO Manager Sustainability and Advocacy


1.Ethical Partners Approach

- Avoid the worst

- Buy the best

- Engage (with) the rest

2.We believe the biggest opportunity for change is to make ESG relevant across the market

3.We do this through Active stewardship of client capital, Active engagement and advocacy with companies for authentic change

4.We have a clear track record of being highly active and making a difference

5.We do all this with a consistent investment process and consistent portfolio outcomes


Ethical Partners investment principles

Establish portfolio positions

Identify leaders (positive screening)

Apply exclusions (negative screening)

Research and understanding companies ESG through EPORA process

Engage regularly with company management

Engage with multiple stakeholders to

actively advocate for change

Use our shareholder voice to advocate through voting

Divest holdings if positive trajectories or commitment to improving ESG is not upheld


Why is engagement so important to us? Company engagement is an integral part of our ESG approach. As part of our proprietary EPORA screening process a detailed engagement plan is created for each company, with relevant questions and issues identified through our EPORA analysis.

The issues we engage on may be related to current company activities, risks, opportunities, footprint, controversies, transitions or impacts, but additionally, are often on gaps we have identified where we believe the company can have a greater potential impacts. For example, areas we believe a company may be missing an opportunity to address an SDG, or an opportunity to display ESG leadership.

We engage with our companies on ESG matters at almost every meeting, as well as in industry wide engagements, such as our recent engagements on gender, or on a sector wide basis such as our recent tax transparency engagement with the extractives sector.

Firstly, these engagements help us to further refine our investment decisions and provide us with important additional information for ESG analysis, as well as to help us to understand a company’s attitude to, attention to, resourcing of, understanding of and management of ESG risks and opportunities.

Secondly, it provides us with a very privileged platform to advocate and call for corporate change at the management or board level.


NUMBER OF ESG ENGAGEMENTS TO JUNE 2020

Social licence to

operate

Data privacy

GenderTax

LobbyingVoting

CorruptionREMTrust

Scope

3

Renew

able

s

Biodiv

ersity

Wat

er

Was

te/R

ecyc

ling

Plast

ics

Palm

oil

Tran

sitio

n pla

nnin

g

Paris g

oals an

d

targ

ets

Fossil fu

el e

xposu

res

Hum

an ri

ghts

Supply

cha

in

Moder

n slav

ery

FPIC

Just

tran

sitio

n

SDGSReporting

Transparency and

disclosure

Collaboration

Divestm

ent

COVID

response

GO

VER

NANCE SOCIAL

OTHER ISSU

ES

EN

VIR

O

NMENT

11

55

123

124

EnvironmentSocialGovernanceOther

ISSUES ENGAGED ON TO JUNE 2020 INCLUDED:


Engagement SuccessWe believe all of our engagements are successful in terms of learning for companies and for ourselves, and in reiterating the importance of ESG to investors, a company’s performance and to the wider community. Successful engagements include:

- Extensive engagement with a major retailer, including Chairman and Head of Sustainability about the issue of Modern Slavery, working conditions within their horticulture supply chain and the protection of these workers. We particularly advocated strongly for improved supply chain assessments, worker-led dispute mechanisms and rights education for workers. We observe that these engagements helped lead to changes, including hiring an external auditor. We will continue to engage and monitor these changes.

- We engaged extensively with the Chairman, Board Members and sustainability teams of a heavy industrial company, regarding the need for accelerating the transition away from fossil fuels, collaboration, knowledge sharing, and test projects/pilots. We were very happy to see this month that they have both joined the Australian Industry Energy Transition Initiative, that will focus on these issues in a collaborative manner and encourage pilot programs and knowledge sharing. The Board also agreed to revisit their emissions targets, and show how they are planning for a just and organised transition.

- We were very involved, both publicly in the media and privately with the company in engagements with Westpac over the AUSTRAC scandal, calling for accountability at senior management and Board level, which contributed to the Chairman and CEO resigning. We have continued to engage with them since on the measures that they have put in place to address this since the scandal. They have also agreed to look more formally on how they report on their corporate impact on Children’s rights after our engagement.

- We had very good engagement with a major mining company about corporate lobbying and they communicated that our input was extremely helpful in understanding investors’ concerns.

- We have engaged with a major developer around emissions targets and are pleased to note they have changed to a wider, more ambitious carbon-neutral target this year.

- We also had successful engagements with all our portfolio companies on their response to our COVID signatory investor expectations, which we sent to all our holdings, and this opened many important conversations and good engagement opportunities on how the companies were addressing worker health and safety, leave provisions, job-keeper and job continuity, employee support and governance during the pandemic. We were also involved with wider advocacy with civil society/human rights activists and the media on Modern Slavery during COVID, such as our recent advocacy on forced labour in the glove industry.

- We engaged with several health insurers about the benefits collaborating on their Modern Slavery Footprint through their hospital providers and are pleased to see they are in the process of planning a working group with several other health insurers to address this.

- We engaged with a large mining company regarding our Transparency International Screening, and we have been pleased to since see progress on contract disclosure and higher discount rates for high risk countries for asset impairment testing.

“We are active,

noisy, engaged

shareholders and

stewards of your

capital”


Voting - Climate and human rights resolutionsAt Ethical Partners, we strongly believe that Shareholder Voting is an important advocacy tool. As well as voting, these

resolutions help drive our engagement discussions with companies on each issue.

Ethical Partners has

supported 100% of climate

and human rights resolutions

during 2019/20


Transparency and

Disclosure Climate Change

Key Focus Areas

Human Rights are addressed at most company meetings. We engaged with companies around a large range of issues such as:

- Modern Slavery Reporting which was discussed with all portfolio companies

- high risk areas and countries of operation

- child labour and forced labour

- their understanding of their supply chains

- supply chain mapping and codes of conduct

- supplier assessments and audits

- grievance mechanisms

- human rights policies

- remediation of issues

- human rights training

- free prior and informed consent

- indigenous land rights

- human rights violations

Climate Change is also addressed at most company meetings. We engage with companies over an extensive range of climate change issues such as:

- their emissions targets (or setting these if not yet set) and progress against them

- their TCFD reporting

- scenario analysis

- issues relating to memberships and climate lobbying

- fossil fuel lending ratios in banking

- carbon pricing

- alignment with the Paris Agreement and IPPC report

- physical and transition risks

- climate change opportunities and innovation

- impacts on water, stranded assets

- sustainable agriculture

- carbon capture/abatement

- offsetting

- stranded assets

Transparency and Disclosure:

- We had excellent engagement with many companies about our 2019 Ethical Standards Report, which highlighted areas of weakness with respect to company reporting and practice. Many companies asked for feedback on how they could improve their policies, reporting, transparency, disclosure and practices, and we look forward to reporting on the progress towards this in our 2020 Ethical Standards Report.

Human Rights


Engagement on Place - Country Risk

Transparency International Corruptions Perceptions Index

We regularly engage with companies on the risks in companies:

- Somalia

- DRC

- Syria

- Equatorial Guinea

- Nigeria

- Haiti (Reviewed yearly with updated T.I Index)

We ask companies to increase their transparency and disclosures and safeguards on their operations in these countries and consider the:

- High Risk of Bribery, corruption, lax governance, poor regulatory and legislative environment

- High Risk of Human Rights and Environmental Abuses


Other engagement examples include:

Improving Listing Rules to require ESG disclosures

GenderFossil Fuel Exposures

Animal Welfare/Antibiotics

Data Palm oil

Black Lung Disease PlasticsRefugee

DeportationsAlcohol and

Gaming DivestmentWage

underpaymentsDeforestation

Breastfeeding Policies

Nutrition and Food Labelling

Waste Tailings Dams WaterDonor exploitation

and health concerns

Indigenous Rights Just transition Conflict MineralsTrust, Governance and Remediation

Pesticides & Chemical Safety

Sustainable farming

Green steel Living wage BiofuelsSocial licence to

operateREM Renewables

Methane Children’s rightsSustainable

buildingWorkers Rights in COVID pandemic

Offsetting Stranded Assets


WHICH SDGS OUR ENGAGEMENT COVERS

WHICH SDGS OUR PORTFOLIO COMPANIES ADDRESS

23%

7%

6%

11%12%

15%

10%

9%

7%

No PovertyDecent Work and Economic GrowthIndustry, Innovation and InfrastructureReduced InequalitiesClimate ActionLife Below WaterLife on LandPeace, Justice and Strong InstitutionsOther


ANZEngagement example

- We have met with the CEO and CFO several times in our offices to discuss a range of pertinent issues including our engagement priorities

Trust and Royal Commission

- We engage deeply with the Board and Management to ensure they have a real commitment to rectifying past behaviours and practices

- We discussed the CEO and Board’s attitude to their issues, their relationship with regulators, reaction to the Royal Commission, responses and internal changes made to address these. We also discussed staffing, capex, reporting hierarchies, remediation and the success of programs implemented to address shortcomings

Environment

- We hold the banks to their commitments to supports Paris Agreement 2 degrees. This involves active advocacy with board and CEO, shareholder resolution voting, advocacy in the media and with other stakeholders ie: NGO’s

- We challenge the banks continually on their fossil fuel lending, targets, TCFD reporting

- Additionally, Ethical Partners was invited to present to the full ANZ Energy Lending group, and had deep and robust conversations with them about de-carbonisation, the inevitable policy transitions they would face, just transition, stranded asset risk and responsible investors expectations. The lenders, and the management team were extremely engaged with this

Responsible Investing

- Ethical Partners was also asked to record a podcast for all ANZ staff, disseminated on their internal intranet, regarding responsible investing and the bank’s social and environmental responsibilities

Living Wages

- We engaged with ANZ about their remediation/compensation for those displaced by the Phnom Penh Sugar Cambodia, whom they had loaned to. This is a historic and important precedent

- We discussed the living wage rectification in Pacific Islands with the CEO and his personal commitment to these social issues

Key Sustainable Development Goals (SDG)


BegaEngagement example

- We have had multiple deep engagements with BEGA at Chair, CEO, and Sustainability Management level, including site visits, advisory consultations and multiple meetings

We have engaged with BEGA successfully on:

- Sustainable Palm Oil and Deforestation, resulting in BEGA joining the RSPO Sustainable Palm Oil certification

- Modern Slavery in their Peanut supply chain, resulting in BEGA increasing the percentage of their Peanuts from Australia, and progressing well on their ethical sourcing framework

Engagement and advocacy

- We have strongly engaged with them on programs to lead positive change in the areas of methane, emissions (including Scope 3), water use, biodiversity, sustainable farming techniques, animal welfare, pesticide use and nitrogen, pollution & effluents – encouraging their good progress with current programs and pushing for enhanced targets and action. We expect to see further action on these programs this year

- We have actively engaged on multiple issues including single use plastics (on which they are making good progress), children’s rights, health, labelling, marketing and nutrition, including their targets to decrease salt and sugar by 2023 and addressing the SDG goals

Key Sustainable Development Goals (SDG)


Bega Broader engagement- collaborating on changeWe strongly believe we have an important role to leverage our shareholder voice, using the funds we are privileged to manage to call for change on a broader scale. We have:

- Made a submission to the Aged Care Royal Commission on the human rights risk of investing in Aged Care

- Made a submission to the NSW Standing Committees review of the NSW Modern Slavery Legislation supporting the introduction of the world leading NSW Legislation – the committee has now once again approved this legislation.

- Met with groups of Non-executive Directors to discuss responsible investing and sustainability issues

- Regular collaboration with NGO’s – Stop the Traffik, Antislavery Australia, Publish What you Pay Coalition, Baptist World Aid, Walk Free, AIM Progress - shareholder advocacy groups – ACCR, ICCR, Market Forces – Policy Groups – IEEFA, Accounting Standards Boards – Academics – RMIT, Monash, Cambridge - Government – Department of Home Affairs – Exchanges – ASX, LME


This may include calling for change through the media when appropriate We believe being able to engage on these issues in the public sphere assists us to convey to companies the importance of ESG

issues to us as investors, as well as to advance these issues on a wider, civil society and public scale.


Engagement Project: TaxWe have had good engagement with extractives industries about tax transparency over the past few months, culminating in the recent launch of our Tax Transparency in ASX Extractives Report in conjunction with the Publish What you Pay Coalition Australia.

We believe that while the report exposes there is a way to go in ensuring transparency, disclosure and fair tax practices in our extractive industry, these were successful engagements, in that these companies now know that investors are asking questions and are concerned about these issues as well as understanding what would is considered best practice in taxation reporting.

Our polling for this report also showed that 80% of people believe that their superannuation fund or investment manager should be advocating on their behalf on taxation issues which has shown the companies that were profiled in this report that this is an area of concern for the public and hence carries potential reputational risks.

We also engaged with the ATO, EITI, PWYP and the PRI extensively this quarter, and see this wider advocacy as an engagement success as well in order to accelerate the wider investment and civil society conversations about these issues.

As such, we were able to present the findings of this report at a PRI Roundtable in August 2020, which was convened to drive collaborative engagements on corporate tax responsibility and transparency.

Ethical Partners will continue to engage on this issue over the coming year and look forward to sharing these results in the future.


Current COVID-19 engagement focusFirst Australian Signatory to the Investor Statement on Coronavirus Response

Joined the PRI Collaboration groups –ESG response to COVID-19 in the short term and ensuring a sustainable financial system in the COVID-19 recovery phase

We engaged with all our portfolio companies regarding investor statement accountability to:

- provide paid leave, including to temp, part-time and contracted workers

- priorities health and safety

- maintain employment as much as possible

- maintain supplier relationships as much as possible, including timely payments

- use financial prudence and the highest level of ethical financial management and responsibility during the crisis


1. Signatory to the Access to Nutrition Initiative

2. Signatory to the Investor Statement calling on companies to improve performance in the Corporate Human Rights Benchmark

3. PRI collaboration on investing with SDG Outcomes

4. PRI collaboration group on Preventing PFAS Pollution by removing forever chemicals from food packaging

5. PRI collaboration group on The Need for Biodiversity Metrics

6. PRI collaboration group on Corporate Tax Responsibility

7. PRI Plastics Working Group

8. Signatory to the “Open Letter to Social Media Companies on the one year anniversary of the Christchurch Terror Attacks” and the

Collaboration for Engagement with Social Media Companies

9. PRI Investor Statement on Living Income and Wages and joined the Collaboration on Living Wage and Income

10. Signatory to the Investor Case for Mandatory Human Rights Due Diligence Statement

11. Joined the SDG2 Advocacy Hub

12. Signatory to the Investor Statement calling on improved performance on corporate Human Rights benchmark

13. Signatory to the “Know the Chain Investor Statement” – Investor expectations on addressing forced labour in global supply chains

14. PRI Collaboration Group on investor guidance on Integrating Children’s Rights into Investment Decision Making

15. PRI Collaboration Group on collaborative engagement on Access to Medicine and SDG3

16. Signatory to the Statement of Investor Commitment to Support a Just Transition on Climate Change

17. Investor Expectations on Climate Change for Airlines and Aerospace Companies – Principles of Responsible Investment (PRI)

18. Global Investor Statement to Governments on Climate Change

19. Investor Statement in Support of Human Rights – Responsible Investment Association Australasia

20. Global Investor Statement on Farm Animal Welfare – Business Benchmark on Farm Animal Welfare

WE BELIEVE STRONGLY THAT COLLABORATION IS VITAL FOR ENGAGEMENT AND CHANGE AND ARE HONOURED TO BE SIGNATORY TO 20 MAJOR INVESTOR COLLABORATIONS


Current and Future Engagement Priorities: We see that post-COVID the focus on social issues, workers’ rights, health and safety protection, insecure work and leave provisions is only going to increase, as well as the focus on the concept of the “social licence to operate”. We see the issue of contracted/temporary labour, as an area of particular concern on which we will be increasing our engagement focus. For example, we have recently engaged with eight property companies about the Cleaning Accountability Framework and its role in addressing modern slavery, working conditions, COVID protections and safety.

Our strong focus on modern slavery will remain, and we look forward to engaging in detail with companies on their first statements under the Modern Slavery Act over the coming year.

We are also increasing our engagements over the coming year on the need for a “green” long-term recovery, with an increased focus on biodiversity, climate change and deforestation and their known links with zoonosis and pandemics. We plan to increase our engagements on Biodiversity in particular over the coming year.

We have also recently engaged with 12 companies whose Board gender balance falls below the 2015 target of 30% as set by the 30% Club. We look forward to sharing the results of these engagements in the future. We believe the disproportionate effects of COVID on women in the workforce will mean gender is a more important engagement going forward.

In 2020, with the markedly disproportionate effects of COVID on particular communities and the Black Lives Matter movements, has brought into stark clarity issues of racial discrimination and inequality. We will as such be increasing our engagement on diversity, indigenous employment and racial equality over the coming year.

We have also engaged several times recently with Rio Tinto on the issue of Juukan Gorge and will continue to do so over the coming period as investigations and inquiries continue. We are also currently engaging with RIO on multiple human rights and environmental issues in PNG, Guinea, Madagascar and Mongolia, as well as Scope 3 emissions disclosure and targets, tax accountability, takeovers, Modern Slavery and lobbying concerns.

Other engagement priorities for the coming year will include disability rights and nutrition, food and health, as well as the rights of the child, data, water, plastics, and the PRI’s Inevitable Policy Response and specifically how this has been shown by COVID to be a possible, meaningful, and motivating corporate risk factor.

Social

Environmental

Other

Rights of the child Data

Water Plastics

PRI inevitable policy response


Ethical Partners would like to sincerely thank our clients for the privilege they have granted us to be able to advocate on their

behalf and leverage our shareholder voice.

We are very grateful for your partnership in advocating for change.

Thank you

Suite 3, Level 4, 130 Pitt Street Sydney NSW 2000

02 8999 1228

[email protected]

www.ethicalpartners.com.au

Ethical Partners Management Services ACN 623 503 720 (EPMS) as Corporate Authorised Representative of Ethical Partners Funds Management Pty Ltd (EPFM) ACN 623 475 454; AFSL 504749 is the author of this publication and Equity Trustees Limited (ABN 46 004 031 298, AFSL 240975) (EQT) is the issuer and responsible entity of the Ethical Partners Australian Share Fund (Australian Share Fund). Access to this publication and the information on it is intended only for people or entities that are Wholesale investors or Sophisticated investors (as set out in the following paragraph).The information provided on this newsletter is general information only. The information has been prepared without taking into account your personal objectives, financial situation or particular needs. Therefore, before acting on any advice, you should consider the appropriateness of the advice in light of your own or your client’s objectives, financial situation or needs. You are responsible for all of your activity in connection with accessing the publication.

The Zenith Investment Partners (ABN 27 103132 672, AFS Licence 226872) (“Zenith”) rating (assigned in May 2020 to the Ethical Partners Australian Share Fund) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/RegulatoryGuidelines

August 2020

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