CADMOS EMERGING MARKETS ENGAGEMENT FUND€¦ · The Cadmos – Emerging Markets Engagement Fund, promoted by PPT, is a compartment of the Luxembourg-based Cadmos umbrella fund. Comgest

CADMOS EMERGING MARKETSENGAGEMENT FUNDBuy & Care® Responsible Investment Fund

Integrated Performance Report2015-2016

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De Pury Pictet Turrettini & Cie S.A.

12, rue de la CorraterieP.O- Box 5335CH-1211 Geneva 11Tel. +41 22 317 00 30Fax +41 22 317 00 33www.ppt.ch

Should you have any questions about this report, please contact :

Dominique Habegger

Head of Cadmos Funds [email protected]

In 1996 David de Pury, Guillaume Pictet, Henri Turrettini and Christian Berner joined forces to create their company. de Pury Pictet Turrettini & Cie S.A. (PPT) provides wealth management services. The fi rm has developed advanced skills in asset management for both private and institutional clients and currently manages around CHF 3 billion.de Pury Pictet Turrettini & Cie has always demonstrated a great capacity for innovation, notably as a pioneer of responsible investment. It is the owner of the Buy and Care® strategy, manager of the Cadmos - European Engagement Fund com-partment and promoter of the Cadmos Fund, and ensures the funds’ consistency, transparency and distribution. PPT is a signatory to the United Nations-supported Principles for Responsible Investment (PRI).

NO TICE

This document is published for information purposes only. The content of this document does not constitute an offer for sale or a solicitation of an offer to purchase nor does it constitute an incentive to invest or to engage in arbitrage transactions. It may not be construed as a contract under any circumstances. The information contained in this document has not been analyzed with regard to your personal profi le. If you have questions regarding any investment or if you have doubts as to whether an investment decision is appropriate, please contact your particular client representative or, if applicable, seek fi nancial, legal, or tax advice from your customary advisors. de Pury Pictet Turrettini S.A. makes every effort to verify the information provided but cannot give any guarantee as to its accuracy. Past performance that might be indicated in the information transmitted by de Pury Pictet Turrettini S.A. in no way determines future returns. Any decision to invest or divest that may be made by the reader of the information appearing herein is made at the sole initiative of the investor who is familiar with the mechanisms governing the fi nancial markets.

This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their fi nancial intermediaries acting in relation to their investment in the fund mentioned in this document. For Swiss investors, the paying agent is Banque Pictet & Cie S.A. and the representative agent is Fund Partner Solutions (Suisse) S.A., Route des Acacias 60, Ch-1211 Genève 73 , Switzerland. The relevant legal documentation may be obtained free of charge from the representative agent, from de Pury Pictet Turrettini & Cie S.A. or online at www.ppt.ch/en/reporting-and-documents. Cadmos Fund Management, 15A, avenue J.F. Kennedy, L-1855 Luxembourg.

This document is the intellectual property of de Pury Pictet Turrettini S.A. Any reproduction or transmission of this document in whole or in part to a third party without the prior written authorization of de Pury Pictet Turrettini S.A. is strictly prohibited.

© 2016, de Pury Pictet Turrettini & Cie S.A. All rights reserved.

For the sixth consecutive year, de Pury Pictet Turrettini & Cie S.A. (PPT) is publishing a trans-parent, comprehensive report on the performance of the Cadmos – Emerging Markets Engagement Fund (the Fund) launched in 2009.1 Cadmos is a Luxembourg-based UCITS V umbrella fund, promoted by PPT and applying our proprietary Buy & Care® strategy.

Our systematic share-holder engagement with the underlying compa-nies represents a unique feature of this strategy. Our objective is far-reach-ing. Overall, we aim at demonstrating that prof-itability and responsibility can be reconciled. To that end, our portfolio manag-ers’ investment decisions are based on sound fundamental analysis, a disciplined management process and a keen understanding of the compa-nies’ business models, supported by our direct engagement and dialogue with the companies. In this way we make sure that we are remunerated for the specific risks that we are taking and that the companies are improving and reducing these risks as appropriate.

The dialogue is also highly valued by the companies, as it improves their ability to judge the impact and quality of their environmental, social and gover-nance (ESG) communications. In addition, our engagement team constantly stimulates the compa-nies to fi nd practical ways of achieving further

progress and increasing their effi ciency.

The fi rst chapter of the present report provides a summary of the Fund’s financial, voting and engagement performance during the reporting cycle. The following four chapters provide a more detailed account of its Buy & Care invest-ment strategy, fi nancial performance and proxy

votes, together with the results of the engagement meetings. The last chapter, “Engagement reports”, contains the engagement reports on selected compa-nies, with details of the assessment and dialogue conducted by the Cadmos Funds experts. The assessments of all the underlying companies are reserved for our current and prospective inves-tors. This report is available on the website at http://www.ppt.ch/en/cadmos

WELCOME

We hope that you will enjoy reading this Integrated Performance Report for 2015–2016. We also take this opportunity to thank our investors for their trust in us year after year.

Our systematic shareholder engagement with the underlying companies represents a unique feature of this strategy.

1. Previously Cadmos Fund Management - Guilé Emerging Markets Engagement Fund, the name of the Fund has been simplifi ed for greater clarity.

SUMMARY OF RESULTS IN 2015-2016 . . . . 5

Financial performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Voting performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Engagement performance . . . . . . . . . . . . . . . . . . . . . . . 10

Cadmos Institutional Event 2015 . . . . . . . . . . . . . . . 13

THE CADMOS FUNDS’ BUY & CARE® STRATEGY . . . . . . . . . . . . . . . . . . . 15

Founding Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Company analysis & Portfolio management . . . 18

Active ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

FINANCIAL MANAGEMENT REPORT . . . 23

Performance of the emerging markets . . . . . . . . . . 24

Portfolio movements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

EXERCISE OF VOTING RIGHTS . . . . . . . . . . . 29

Distribution of votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Main oppositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Analysis of votes by topic . . . . . . . . . . . . . . . . . . . . . . . 32

SHAREHOLDER ENGAGEMENT . . . . . . . . . 37

Impact of the UN Global Compact engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Impact the fi nancially material engagement . . . 40

Improvements and main stories . . . . . . . . . . . . . . . . . 43

Long-term results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Engagement outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

ENGAGEMENT REPORTS . . . . . . . . . . . . . . . . . . 51

TABLE OF CONTENTS

SUMMARY OF RESULTS IN 2015-2016

SUMMARY OF RESULTS IN 2015-20166/51

The Cadmos – Emerging Markets Engagement Fund, promoted by PPT, is a compartment of the Luxembourg-based Cadmos umbrella fund. Comgest has managed the Fund since its inception in 2009. In 2015, classes A and B of the compart-ment returned minus 11.79 per cent and minus 10.99 per cent respectively, while outperforming the benchmark index (the MSCI Emerging Markets Index – Net Return), which was even further into negative territory at minus 14.92 per cent. The year will be remembered as one of the most torrid years for the emerging markets. Fortunately, the sharp declines in Latin America and Russia were cushioned by strong relative performances from the Asian stock markets.

The Fund’s strategy proved its effectiveness in this period of high volatility. At December 2015 the Fund (Class B) had outperformed its index by 5 per cent since its launch in 2009.

Most of the markets had to contend with disap-pointing earnings growth. Corporate profi ts were hit by the decline in household purchasing power due to weakening currencies and falling real wages, which hampered growth signifi cantly, and the negative operating leverage following years of reckless expansion. Asian earnings outperformed those of the other regions.

We are more exposed than ever to China, a sign of our ability to hunt down good ideas. The quality

of Chinese businesses is improving, and growth, albeit slower, continues to fuel turnover. Chinese profi ts could make signifi -cant strides in the coming years.

For example, the video-games maker NetEase beat our most optimistic expectations by the scale of its success in the mobile games segment. Several of its products in this area now top the world charts.

The portfolio’s turn-over was higher than usual in 2015. As the next table shows, we sold seven positions and intro-duced eight others, including three investments in Chinese stocks. In fact, the fi rst positions in SAIC were acquired in December 2014. This company is China’s largest carmaker and represents Volkswagen and General Motors. Its size, technol-ogy, market share and brands, together with the fact that vehicle penetration remains relatively low in China, make it a promising long-term invest-ment. We also acquired smaller positions in Inner Mongolia Yili, a producer and distributor of dairy products, and in Weifu High-Technology, at the end of the year. Weifu is a joint venture with the Bosch group. It is the leader in China’s fast-grow-ing market for emissions-upgrade automotive components and is also the technological leader in fuel injection systems.

The Fund’s strategy proved its effectiveness in this period of high volatility. At December 2015 the Fund (Class B) had outperformed its index by 5 per cent since its launch in 2009.

FINANCIAL PERFORMANCE

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80.00

mar. 09 sep. 09 mar. 10 sep. 10 mar. 11 sep. 11 mar. 12 sep. 12 mar. 14mar. 13 sep. 14sep. 13 mar. 15 sep. 15

Cadmos Emerging Markets Engagement fund (B) MSCI EM - Net Return $

PERFORMANCE SINCE INCEPTION

SUMMARY OF RESULTS IN 2015-2016 7/51

Portfolio as at 31.12.2015 Sector CountryAIA GROUPE (New) Insurance Hong Kong BAIDU Technology ChinaBB SEGURIDADE PARTICIPACOES (New) Insurance BrazilBHARAT HEAVY ELECTRICALS Industrial Goods & Services IndiaBHARTI AIRTEL (New) Telecommunications IndiaBHARTI INFRATEL Telecommunications IndiaBRF BRASIL FOOD Food & Beverage BrazilCCR CONCESSOES DE RODOVIAS Industrial Goods & Services BrazilCHINA LIFE INSURANCE COMPANY Insurance ChinaCHINA MOBILE Telecommunications ChinaCIELO Financial Services BrazilCK HUTCHISON HOLDINGS Industrial Goods & Services Hong KongCOCA-COLA FEMSA (New) Food & Beverage MexicoCOCA-COLA HBC Food & Beverage United KingdomCOMGEST GROWTH LATIN AMER. Fund OtherCOMGEST GROWTH-GEM PROM. Fund OtherCOMGEST GROWTH-GROWTH INDIA Fund OtherDISCOVERY (New) Insurance South AfricaEMPRESAS COPEC Oil & Gas ChileFEMSA Food & Beverage MexicoGAIL INDIA (Out) Oil & Gas IndiaGPA CIA BRASILEIRA DE DISTRIBUICAO Retail BrazilHEINEKEN Food & Beverage NertherlandsINFOSYS Technology IndiaINNER MONGOLIA YILI (New) Food & Beverage ChinaJBS (Out) Food & Beverage BrazilKWEICHOW MOUTAI COMPANY Food & Beverage ChinaLOCALIZA RENT A CAR Retail BrazilMAGNIT Retail RussiaMAIL.RU GROUP Technology RussiaMEDIA TEK (Out) Industrial Goods & Services TaiwanMOBILE TELESYSTEMS OJSC (Out) Telecommunications RussiaMTN GROUP Telecommunications South AfricaNASPERS Media South AfricaNATURA COSMETICOS Personal & Household Goods BrazilNETEASE Technology ChinaODONTOPREV Health Care BrazilPING AN INSURANCE Insurance ChinaPOWER GRID INDIA Utilities IndiaSABMILLER (Out) Food & Beverage South AfricaSAIC MOTOR Automobiles & parts ChinaSAMSUNG LIFE INSURANCE Insurance KoreaSANLAM Insurance South AfricaTAIWAN SEMICONDUCTOR TSMC Technology TaiwanTATA MOTORS (Out) Industrial Goods & Services IndiaTENARIS (Out) Basic Resources ArgentinaWEG Industrial Goods & Services BrazilWEIFU HIGH-TEC (New) Automobile & parts ChinaYANDEX Technology Russia


During the period under review we expressed an opinion on 503 items on the agendas of annual general meetings (AGMs) of thirty-three compa-nies. Contrary to the developed countries, the emerging-market countries saw no substantial rise in the number of resolutions submitted to the vote. Nevertheless, corruption scandals at businesses from Brazil to China are increasing the pressure on companies everywhere to improve their gover-nance practices.

The overall proportion of opposing votes declined from 18.7 per cent to 15.5 per cent (78 votes against management). This occurred despite a slight increase in remuneration controversies. In 2015 we opposed 34.4 per cent of pay-related resolu-tions, versus 30.8 in 2014. Remuneration and the lack of independent boards of directors are the issues of greatest concern in the emerging markets. These two topics combined drew nearly twice as many oppositions as in most developed markets.

VOTING PERFORMANCE

DURING THE PERIOD UNDER REVIEW WE EXPRESSED AN OPINION ON 503 ITEMS ON THE AGENDAS OF ANNUAL GENERAL MEETINGS (AGMS) OF THIRTY-THREE COMPANIES.

In 2015, CK Hutchison was the company incur-ring the highest proportion of votes against its management. We voted against seventeen of the nineteen resolutions concerning the board of direc-tors, mainly because less than a third of its board members are independent. In such cases, Comgest applies stricter rules than usual and will gener-ally also refuse to support directors serving on too many boards.

Boards in the emerging-market countries are strug-gling to make their structure and independence meet our standards of transparency. This was a recurring theme in all the regions and has always been seen as the emerging markets’ weak point.

The table above shows that, in absolute terms, board structure and independence is still the main point of contention, accounting for thirty-nine votes against management recommendations.

By contrast, in the previous year we opposed fi fty-one resolutions on this theme out of a total 207 (25 per cent). Statistically, te decrease in 2015 is due to the absence of Richemont, but in fact we noticed that some companies in the Fund had improved their disclosure practices. In the case of Natura Cosmeticos, for example, this allowed us to accept all nine board-related items this year, whereas we had opposed two of the eleven in 2014 owing to a lack of information.

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DISTRIBUTION OF OPPOSING VOTES

39

23

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For Against

1. Board of directors 2. Remuneration 3. Capital structure 4. Shareholder’s rights

15

177

44

160

44


2015 Total Total %Name country 01.01 31.12 Voted Description resolutions against AgainstAIA GROUPE (New) Hong Kong 0 1 0 Entry after AGM 0 0 BAIDU China 1 1 0 No voting rights 0 0 BB SEGURIDADE PARTICIPACOES (New) Brazil 0 1 0 Entry after AGM 0 0 BHARAT HEAVY ELECTRICALS India 1 1 1 Voted 10 5 50.00%BHARTI AIRTEL (New) India 0 1 1 Voted 7 1 14.29%BHARTI INFRATEL India 1 1 1 Voted 12 4 33.33%BRF BRASIL FOOD Brazil 1 1 1 Voted 10 2 20.00%CCR CONCESSOES DE REDOVIAS Brazil 1 1 1 Voted 7 3 42.86%CHINA LIFE INSURANCE COMPANY China 1 1 1 Voted 31 2 6.45%CHINA MOBILE China 1 1 1 Voted 11 3 27.27%CIELO Brazil 1 1 1 Voted 6 1 16.67%CK HUTCHISON HOLDINGS Hong Kong 1 1 1 Voted 28 19 67.86%COCA-COLA FEMSA (New) Mexico 0 1 0 Entry after AGM 0 0 COCA-COLA HBC United Kingdom 1 1 1 Voted 27 3 11.11%COMGEST GROWTH LATIN AMER. Other 1 1 0 Fund 0 0 COMGEST GROWTH-GEM PROM. Other 1 1 0 Fund 0 0 COMGEST GROWTH INDIA Other 1 1 0 Fund 0 0 DISCOVERY (New) South Africa 0 1 1 Voted 21 1 4.76%EMPRESAS COPEC Chile 1 1 1 Voted 6 1 16.67%FEMSA Mexico 1 1 1 Voted 8 0 0.00%GAIL INDIA (Out) India 1 0 0 Exit before AGM 0 0 GPA CIA BRASILEIRA DE DISTRIBUICAO Brazil 0 1 0 Entry after AGM 0 0 HEINEKEN Nertherlands 1 1 1 Voted 12 0 0.00%INFOSYS India 1 1 1 Voted 14 0 0.00%INNER MONGOLIA YILI (New) China 0 1 0 No voting rights 0 0 JBS (Out) Brazil 1 0 1 Voted 12 2 16.67%KWEICHOW MOUTAI COMPANY China 1 1 0 No voting rights 0 0 LOCALIZA RENT A CAR Brazil 1 1 1 Voted 18 1 5.56%MAGNIT Russia 1 1 1 Voted 37 0 0.00%MAIL.RU GROUP Russia 1 1 1 Voted 9 0 0.00%MEDIA TEK (Out) Taiwan 1 0 1 Voted 14 0 0.00%MOBILE TELESYSTEMS OJSC (Out) Russia 1 0 0 Exit before AGM 0 0 MTN GROUP South Africa 1 1 1 Voted 18 1 5.56%NASPERS South Africa 1 1 1 Voted 39 10 25.64%NATURA COSMETICOS Brazil 1 1 1 Voted 28 6 21.43%NETEASE China 1 1 1 Voted 8 1 12.50%ODONTOPREV Brazil 1 1 1 Voted 9 0 0.00%PING AN INSURANCE China 1 1 1 Voted 32 4 12.50%POWER GRID INDIA India 1 1 1 Voted 11 2 18.18%SABMILLER (Out) South Africa 1 0 0 Exit before AGM 0 0 SAIC MOTOR China 1 1 0 No voting rights 0 0 SAMSUNG LIFE INSURANCE Korea 1 1 1 Voted 4 0 0.00%SANLAM South Africa 1 1 1 Voted 18 0 0.00%TAIWAN SEMICONDUCTOR TSMC Taiwan 1 1 1 Voted 11 0 0.00%TATA MOTORS (Out) India 1 0 1 Voted 6 2 33.33%TENARIS (Out) Argentina 1 0 0 Exit before AGM 0 0 WEG Brazil 1 1 1 Voted 8 0 0.00%WEIFU HIGH-TEC (New) China 0 1 0 No voting rights 0 0 YANDEX Russia 1 1 1 Voted 11 4 36.36% 42 42 33 503 78 15.51%


As can be seen from the table opposite, we assessed thirty-six of the companies in the Fund during this reporting cycle (January 2015 to March 2016) and engaged with twenty-two companies (61 per cent).2 This level of engagement is unique in the context of emerging-market compa-nies. It is especially high considering that eight new companies entered the portfolio in 2015 and four others were assessed for the fi rst time, having entered late in 2014. Credit for this success must go to the dedication of the engage-ment team and the overall stability of the portfolio.

Our dialogues generally take place in a highly constructive atmosphere, with astonishing trans-parency on the part of the companies. These conditions are also unique in the responsible-funds universe. As a result, eight companies (22 per cent) have already reached level 5; that is, have shown an improvement on at least one weak point that had been raised previously.

Thre e more companies: CCR Concessoes de Rodovias, Localiza Rent a Car and Heineken, reached level 5 in 2016. Our experts got together with Heineken for the sixth time, and this conti-nuity accounts for the quality of our discussion of the progress achieved over time. In its 2012 sustain-ability report, Heineken had already mentioned our dialogue’s positive contribution to the compa-ny’s social responsibility policy. CCR and Localiza were upgraded, as we have noted that these two companies use our feedback year after year to improve the comprehensiveness of their sustain-ability reports. Together with China Life, CK Hutchison and Taiwan Semiconductor, which were also upgraded, they are described in greater detail in the chapter “Improvements and main stories” on pages 31ff.

Despite excellent meetings with China Mobile and MTN, we downgraded both to level 4, “Approves the progress objectives clearly specifi ed”, since in the main, they have yet to follow through on

ENGAGEMENT PERFORMANCE

2. We assessed all except the three that entered the portfolio late in the year (BB Seguridade Participacoes, Coca-Cola Femsa and Inner Mongolia Yili).

DISTRIBUTION OF ENGAGEMENT LEVEL : 2010-2016

Level 6

Level 5

Level 4

Level 3

Level 2

Level 1

Average

2010-2011

1.43

2011-2012

2.61

2012-2013

2.69

2013-2014

2.62

2014-2015

2.97

2015-2016

2.69

the previous year’s recommendations. For China Mobile, we still recommend constructing a mate-riality matrix and introducing and publishing a

code of conduct. MTN, on the other hand, should publish more informa-tion on labour norms, which are particularly relevant to South Africa. Both companies showed a genuine interest in our discussion and MTN indi-cated that further support might be needed. For these companies timing seems to be the main issue, rather than motivation. We also downgraded Baidu, Bharti Infratel, Naspers and Yandex to level 1, as

we were unable to follow up on our dialogue of the previous year.

For company meetings we insist on including representatives of the fi nancial side of the busi-ness (investor relations, CFO offi ce etc.) as well as the social-responsibility side. By thus conveying a message of ESG integration we get the attention of the former and strong support from the latter. The dialogue is always very revealing as to how well the two sides are aligned and coordinated. There is probably no better way to see whether the ESG strategy is truly integrated into the overall corporate strategy.

we assessed thirty-six of the companies in the Fund during this reporting cycle (January 2015 to March 2016) and engaged with twenty-two companies (61 per cent).


Portfolio as at 31.12.2015 Engagement type Level Change SummaryAIA GROUPE (New)* Conference Call 2 New First discussion with the company.BAIDU No meeting 1 -2 No interest for engagement meeting this year.BB SEGURIDADE PARTICIPACOES (New) No meeting (late entry) New NewBHARAT HEAVY ELECTRICALS No meeting 1 =BHARTI AIRTEL (New) No meeting 1 New Has been sold and re-bought - Previous discussions were held.BHARTI INFRATEL No meeting 1 -1 Not interested in an engagement meeting this year.BRF BRASIL FOOD No meeting 1 =CCR CONCESSOES Conference Call 5 +5 Precise suggestions implemented -DE REDOVIAS** Next report inspired by our recommendationsCHINA LIFE Meeting 4 +1 Very committed head of CSR willing to implement our recommendations.INSURANCE COMPANY** CHINA MOBILE Meeting 4 -1 High level of interest but recommendations have yet to be followed through.CIELO Conference Call 4 =CK HUTCHISON HOLDINGS* Conference Call 2 +1 First discussion with the company.COCA-COLA FEMSA (New) No meeting (late entry) New NewCOCA-COLA HBC Conference Call 5 =COMGEST GROWTH LATIN AMER. Fund Fund FundCOMGEST GROWTH-GEM PROM. Fund Fund FundCOMGEST GROWTH INDIA Fund Fund FundDISCOVERY (New)** Meeting 2 New First discussion with the company.EMPRESAS COPEC Conference Call 5 =FEMSA Conference Call 4 = GAIL INDIA (Out) Exit Exit ExitGPA CIA BRASILEIRA DE DISTRIBUICAO (New)** Conference Call 2 NewHEINEKEN* Conference Call 5 +1 First discussion with the company.INFOSYS No meeting 1 = Ongoing improvements.INNER MONGOLIA YILI (New) No meeting (late entry) New NewJBS (Out) Exit Exit ExitKWEICHOW MOUTAI COMPANY No meeting 1 NewLOCALIZA RENT A CAR** Conference Call 5 +2 Precise suggestions implemented.MAGNIT Conference Call 3 = Ongoing dialogue without signifi cant progress.MAIL.RU GROUP* Conference Call 2 New First discussion with the company.MEDIA TEK (Out) Exit Exit ExitMOBILE TELESYSTEMS OJSC (Out) Exit Exit ExitMTN GROUP Meeting 4 -1 High level of interest but recommendations have yet to be followed through.NASPERS No meeting 1 -3 Not possible to schedule a brefi ng this year.NATURA COSMETICOS Conference Call 5 =NETEASE No meeting 1 =ODONTOPREV** Conference Call 5 = CEO participation in the call shows the company’s interest in making progress.PING AN INSURANCE No meeting 1 =POWER GRID INDIA No meeting 1 = Not interested in an engagement meeting this year.SABMILLER (Out) Exit Exit ExitSAIC MOTOR* Conference Call 2 New First discussion with the company.SAMSUNG LIFE INSURANCE No meeting 1 =SANLAM* Meeting 4 +1 Willingness to implement our recommendations.TAIWAN SEMICONDUCTOR TSMC* Conference Call 4 = Strong interaction with the company but without signifi cant progress.TATA MOTORS (Out) Exit Exit ExitTENARIS (Out) Exit Exit ExitWEG Conference Call 5 =WEIFU HIGH-TEC (New) No meeting 1 NewYANDEX No meeting 1 -1 Not interested in an engagement meeting this year.

* For further information on these companies see “Improvements and main stories”, pages 43ff.

** For a commentary on these companies see “Improvements and main stories” on pages 43ff. In addition, the complete engagement reports on these companies are provided in the chapter “Engagement reports” on pages 51ff.


TESTIMONIALS FROM SOME OF THE COMPANIES WITH WHOM WE ARE ENGAGED IN DIALOGUE

We greatly appreciate these testimonials, which

bear witness to the results that can be obtained by

maintaining an influential dialogue conducted professionally and

courteously.

“… YOUR CONTINUOUS FEEDBACK IS KEY FOR OUR PROGRESS ON CSR ACTIVITIES…”

JOSE ROBERTO PACHECO, EXECUTIVE DIRECTOR & IRO, ODONTOPREV.

“… THANKS A LOT FOR THE CALL. IT WAS VERY IMPORTANT TO HAVE YOUR INPUTS ABOUT OUR PRACTICES…”

GLEICE DONINI DE SOUZA, GERENTE DE SUSTENTABILIDADE, VICE-PRESIDÊNCIA DE DESENVOLVIMENTO ORGANIZACIONAL, CIELO.


TRANSFORMING SOCIAL AND ENVIRONMENTAL CHALLENGES INTO A COMPETITIVE ADVANTAGE – THE EXAMPLE OF GEBERIT

CADMOS INSTITUTIONAL EVENT 2015

Albert Baehny, president of Geberit, travelled from Jona to Geneva to attend the Cadmos Swiss Engagement Fund’s fi rst-anniversary celebra-tions. Geberit has also been part of the Cadmos - European Engagement Fund since the latter’s inception on 19 October 2006.

Mr Baehny has participated personally in the share-holder dialogue that we strive to maintain with all the underlying companies. In recent years, he and the head of Environment and Sustainability at Geberit, have joined Alexandre Stucki, manager of the Cadmos Swiss Engagement Fund, and Thomas

Streiff, head of the Guilé engagement team, to discuss the impact of environmental, social and governmen-tal factors on the company’s business model.

But why should Geberit take the time to talk to Cadmos Engagement Funds or make the trip to Geneva for the anniversary? Mr Baehny was keen to answer that question: “Investors should give companies the time needed to apply a sustainable growth strategy. I therefore welcome the Cadmos Engagement Funds’ commitment to treating busi-nesses with respect, through a shareholder dialogue that allows for more pragmatic discussions.”

Addressing an audience of more than eighty investors, Albert Baehny, president of Geberit, explained how the company integrated sustainability and ESG factors into its strategy.

Speaking at the anniversary event, Mr Baehny stressed that for Geberit there was no confl ict between long-term value creation and social responsibility; though of course it remained a challenge for a listed company that was scrutinised quarterly for every basis point of change. Geberit began drafting an environmental strategy back in 1990. In 2005 sustainability was already one of the six initiatives defi ned by the company as a means of improving its productivity.

This strategy soon began to bear fruit, thanks in part to clear objectives. Between 2006 and 2014, Geberit steadily increased its productivity while reducing its carbon emissions by 42 per cent and its water consumption by 56 per cent and, perhaps more surprising, while creating 11 per cent more jobs. The objective is to return to shareholders all the generated cash that is not needed to meet the strategic goals. That is exactly what we are looking for in the Cadmos Funds.

Finally, Mr Baehny emphasised the importance of a strong corporate culture. Staff must own the sustainability strategy if the latter is to be successful. With transformational changes and the appropriate investments the employees gradually integrate Geberit’s key values into their own thinking and decision-making.


THE CADMOS FUNDS’ BUY & CARE® STRATEGY

16/51THE CADMOS FUNDS’ BUY & CARE® STRATEGY

FOUNDING PRINCIPLES

For nine years now we have been demonstrat-ing that active management can be reinvented to reconcile profi tability with responsibility. Active portfolio management based on thorough funda-mental analysis is the keystone of the Buy & Care investment strategy. The strategy, developed by PPT, has now matured to a point where it may be useful to restate its three founding principles. They have proved particularly reliable in the long term and through changing fi nancial and economic.

1. We do not invest in a stock but in a company. Every effort will be made to visit the compa-nies and increase our understanding of their business model and their senior managements’ ability to ensure its longevity.

2. The main aim is to create added value for our investors in the medium and long term. We are proud to have advanced active management as a whole, particularly by working with a longer time horizon that requires strict discipline in the fundamental analysis.

3. We build concentrated portfolios. Our deep analysis strengthens our convictions and reduces portfolio turnover and transaction fees, while also enabling us to deviate from the benchmarks.

The shareholder engagement that underpins the Buy & Care strategy is applied to all the Cadmos Funds. We are convinced that continuous, non-in-dulgent dialogue with the companies creates value for all the stakeholders. It also enables the portfolio managers to integrate the ESG risks and opportunities into their investment deci-sions. Through this approach we strengthen our understanding and fundamental analysis of the companies. Our managers’ assessments of the risks and sustainability of the companies’ busi-ness models are sharpened, and their investment convictions are more solidly based. With time, the markets perceive and reward the uptrend in the companies’ quality and this is refl ected in the value of our investments.

This work calls for a portfolio management team with the skills required to integrate the ESG factors and link them to the classic fi nancial valuation models.

The Cadmos Funds managers all benefi t from extensive experience and considerable freedom in their capacity as owner-partners of their company. They have been in place since the launch of each compartment and apply the Buy & Care strat-egy together with deep fundamental analysis, a low turnover rate and shareholder engagement as conducted by the engagement team.

For nine years now we have been demonstrating that active management can be reinvented to reconcile profitability with responsibility. Active portfolio management based on thorough fundamental analysis is the keystone of the Buy & Care investment strategy.

Compared with the usual SRI methods, based on exclusions and best in class, the Cadmos Funds’ innovative combination of integration and engage-ment strategies presents a number of advantages. First, our managers are not subject to dogmatic rules and possibly arbitrary ESG ratings. Free of these external constraints, they are fully respon-sible for the fund’s performance. We believe that in all but a few exceptional cases, dialogue is

preferable to exclusion. Sometimes the Cadmos Funds remain the only responsible investor still maintaining the dialogue and suggesting areas with potential for progress on the ESG issues. Either the companies refuse to converse with sharehold-ers that adopt an overly infl exible stance, removed from the economic realities; or the shareholders themselves decide to exclude certain companies from the dialogue.

17/51THE CADMOS FUNDS’ BUY & CARE® STRATEGY

In addition, the Cadmos Funds stand out from the best-in-class strategy, where investment deci-sions often depend on highly qualitative ESG ratings. These ratings, which rarely integrate the fi nancial parameters or take the trouble to understand the companies’ business models, lead to sub-optimal investment decisions. This strategy has diffi culty convincing traditional investors, whose scepticism increases when they consult a list of best-in-class businesses, whose social and environmental vocation is not always apparent. By taking care not to ostracise prof-itable businesses that will probably continue to grow, and by concentrating on their progress, so

as to ensure that they learn from their mistakes and from our dialogue, the Cadmos Funds play a complementary and perhaps signifi cant role in the responsible investment universe.

The Buy & Care strategy is a virtual, cycli-cal process built around listening to investors’ concerns. Applied to the Cadmos Funds, it pushes back the frontiers not only of responsible invest-ment but of active management. The following diagram provides a simplifi ed view of the three-step Buy & Care process as it applies to the Cadmos – Emerging Markets Engagement Fund.

The Buy & Care strategy is not a one-size-fi ts-all approach. It is designed to adapt to the selected geographical coverage and the particularities of each portfolio manager. But the following features are common to all the Cadmos Funds: deep fundamental analysis; a focus on the longev-ity of the companies’ competitive advantages and

therefore their ESG characteristics; use of valua-tion models to avoid overpaying for companies; concentrated, low-turnover portfolios; professional risk management; systematic voting at companies’ AGMs; and shareholder engagement with the UN Global Compact principles and the fi nancially material issues.

Active Ownership- Voted by portfolio manager- UNGC Engagement- Financial Materiality Focus

Company analysis- Leaders and trendsetters- Competitve advantage (SDG’s)- Integrated valuation model

Portfolio managament- Convictions (about 30-40 companies)- Long term (turnover 25%)- Risk management & selling discipline

Buy

& C

are

® Buy & C

are ®

Buy & Care ®

THE CADMOS FUNDS’ BUY & CARE STRATEGY

STRATEGIC POSITIONING OF THE CADMOS FUNDS

Financial performance

Cadmos Funds

Integration

EngagementSo

cial

per

form

ance

Best in class

Exclusion

18/51

Comgest, manager of the Fund since the latter’s inception in 2009, has ensured that its investment process continues to evolve. As a signatory to the Principles for Responsible Investment since March 2010, it looks for companies that enjoy visible and sustainable long-term growth. Comgest begins by identifying businesses with earnings growth of more than 10 per cent, above-average profi t margins and return on equity, a sound balance sheet and low debt. As can be seen from the invest-ment process shown below, it then analyses the quality of the companies as franchises (barriers to entry, strong competitive advantages etc.). Lastly, a fi ve-year forecasting model based on systematic

use of discounted profi ts and dividends leads to the selection of reasonable valuations in this universe.

In 2011 Comgest launched a programme aimed at integrating the ESG criteria into its company anal-yses. To do so it adopted a risk-based approach. Evaluating the risks associated with the ESG factors serves to strengthen the fundamental-anal-ysis model. Two dedicated analysts assign a level of ESG risk to each company. The level is adjusted continuously as new information is obtained. At present, the results of the ESG analysis are incor-porated qualitatively, by the fi nancial analyst, into the overall assessment of each company’s risks.

COMPANY ANALYSIS & PORTFOLIO MANAGEMENT

PORTFOLIO CONSTRUCTION


Comgest follows a pure stock-picking approach, without reference to the composition of the benchmark index. It may favour or avoid certain industries or regions. The sectoral and geographic allocations are reviewed only after the stocks are identified. Constructing the port-folio involves the selection of twenty-five to forty-five companies with strong potential for outperformance in the medium and long term. This concentration is desirable in the case of an engagement fund, since it means that the cost

of the shareholder dialogue can be contained. And that concentration is combined with an extremely low turnover rate, which increases the quality of the dialogue.

There are two classes: Class A for private investors and Class B for institutional investors. In both classes a signifi cant proportion of the management fees is handed on to the Fondation Guilé to fi nance the activities of the engagement team, which initi-ates and conducts the shareholder engagement.

INVESTMENT PROCESS

ONGOING ASSESSMENT

1. IDENTIFICATION OF POTENTIAL INVESTMENTS

Quantitative criteria- EPS growth > 10% p.a.- ROE > 15%- Strong free cash-flows- Sound balance sheet

Qualitative criteria- Strong business franchise- High barriers to entry- Earnings visibility- Solid management & governance

Total Universe: regional stocks with a market cap > $1bn, including off-benchmark stocks

Investment Candidates = around 300 stocks

2. DETAILED ANALYSIS OF CANDIDATES

In-depth analysis of the company, the competition and the marketsMeetings with senior management and on-site visits

3. INVESTMENT UNIVERSE

Unanimous team decision : + / - stocks

Investment Universe = around 150 stocks

4. VALUATION

Define upside / downside potential

5. PORTFOLIO CONSTRUCTION

Portfolio = 25 - 45 stocks

19/51

ACTIVE OWNERSHIP

PROXY VOTING

The Fund pursues an active-ownership strategy based on three pillars: exercising our voting rights; engaging with the companies to improve their quality in relation to the UN Global Compact principles; and engaging with them on their most financially material issues.


In the past, company visits and participation in the annual general meeting (AGM) were standard practice for investors. Today, electronic trading and information systems, while useful and effi -cient, have unfortunately also made some primary

sources of information obsolete. In our opinion, voting and shareholder engagement should once again be closely linked to the portfolio manag-er’s investment decision and therefore be part and parcel of his responsibilities.

The real long-term fi nancial impact of the decisions made at an AGM is well documented. Few profes-sionals would deny that the skills, independence and availability of a board of directors are criti-cal to a company’s future. The effects of a capital increase, for example, will be felt immediately. For PPT, exercising the right to vote is fi rst and fore-most a fi nancial responsibility.

Comgest has elected the independent proxy Institutional Shareholder Services (ISS) to exer-cise its vote. ISS is responsible for studying the resolutions and providing voting recommenda-tions in accordance with responsible investment

principles. These recommendations, prepared by the specialised ISS analysts, provide valuable support to Comgest’s own thinking. However, the ultimate voting decision rests with Comgest’s analysts and portfolio managers.

PPT divides the items under discussion at an AGM into four topics: the structure of the board of directors; the transparency and coherency of the remuneration policy; capital structure and distribution; and respect for the rights of long-term shareholders. Our anal-ysis of voting in the 2015 AGM season, presented in the chapter “Exercise of voting rights”, is broken down according to that classifi cation.

VOTING GUIDELINES

STURCTURE OF THE BOARD OF DIRECTORS1. Election of individual board members2. Functioning and independence of the various committees3. Separation of CEO function and president of the board of directors4. Granting of the discharge

TRANSPARENCY AND COHERENCE OF THE REMUNERATION STRUCTURE5. Appropriate structure of the remuneration system for the executive committee 6. Appropriate structure of the remuneration system for the board memebers

STRUCTURE AND OWERSHIP OF SHARE CAPITAL7. Approval of accounts and allocation of profi ts/dividends8. Appropriate capital structure9. Appointment of the auditors

SHAREHOLDERS’ RIGHTS10. Amendments to article of association, equal treatment or shareolders and anti-takeovermeasures

20/51

THE UN GLOBAL COMPACT’S 10 PRINCIPLES

HUMAN RIGHTS1. Businesses should support and respect the protection of internationally proclaimed human rights; and2. make sure that they are not complicit in human rights abuses.

LABOR STANDARDS3. Businesses should uphold the freedom of association and recognise the right to collective bargaining;4. eliminate all forms of forced and compulsory labor;5. abolish child labor; and6. eliminated discrimination in respect of employment and occupation.

ENVIRONMENT7. Businesses should support a precautionary approach to environmental challenges;8. undertake initiatives to promote greater environmental responsability; and9. encourage the development and diffusion of environmental friendly technologies.

ANTI-CORRUPTION10. Businesses should work against corruption in all forms, including extortion and bribery.

The continuous dialogue that we seek as a share-holder is another distinguishing feature of our investment strategy. The engagement process is similar to that for voting: we outsource the primary research and the process management but always have the fi nal word on buying or selling decisions. Fondation Guilé is engagement advisor to the Fund. In that capacity, it gives mandates to an experienced multi-disciplinary engagement team of independent consultants led by Thomas Streiff. The team assesses the companies’ perfor-mance in relation to the principles of the UN Global Compact. That assessment provides the basis for a constructive dialogue between the engagement team, the portfolio manager and the company’s key representatives.

At meetings with the companies we insist on including representatives of the fi nancial side of the business (investor relations, CFO offi ce etc.) as well as the social-responsibility side. By thus conveying a message of ESG integration we get the attention of the former and strong support from the latter, which is often poorly integrated into the company’s global strategy. Meetings confi gured like this are often new to both sides, and can tell the portfolio managers a great deal about how well they are coordinated. There is probably no better way to see whether the ESG strategy is truly inte-grated into the company’s overall strategy.

The Cadmos Funds’ shareholder engagement is based on the four themes and ten principles of the UN Global Compact.


THE GLOBAL COMPACT ENGAGEMENT PROCESS

THE CADMOS FUNDS’ SHAREHOLDER ENGAGEMENT IS BASED ON THE FOUR THEMES AND TEN PRINCIPLES OF THE UN GLOBAL COMPACT.

21/51

The Global Compact is a unique self-regulatory initiative signed by more than eight thousand companies who strive to align their current opera-tions with ten universally accepted principles in the areas of human rights, international labour stan-dards, environmental standards and the fi ght against corruption. The signatory company’s sole obligation is to communicate the progress achieved, so that stakeholders are better informed about its challenges.

The dialogue is established and maintained by means of a four-step process illustrated below. The engagement team begins by assessing the compre-hensiveness and quality of all the information

published on the ten Global Compact principles (company data and publications). It forwards its assessments to the fund management team, to have the latter validate, fi rst, the improvements and shortcomings noted, and second, the fi nan-cially material issues that will be addressed with the company. Once the assessment is validated (COP - Communication On Progress - Analysis) and completed by the portfolio manager, a summarised version (Assessment Results) is sent to the compa-nies’ highest executive and operational bodies. This document focuses their attention on their company’s strengths and weaknesses and not on occasionally abstract ESG ratings.


The dialogue is established and maintained by means of a four-step process illustrated below.

Company data and publications

Shareholder dialogue

Assessment results

COP analysis

ENGAGEMENT PROCESS

The assessment opens the way to a construc-tive on-going dialogue in which our experts may suggest concrete improvements and monitor their implementation. The discussion begins with a commentary on the assessment results and then goes on to explore the most realistic and fi nancially material paths to progress.

The COP-Analysis conducted by the engage-ment team distinguishes between the comprehensiveness and the quality of the compa-nies’ extra-fi nancial reporting.

The comprehensiveness analysis is carried out for each of the ten Global Compact principles accord-ing to the following eight criteria.

22/51

This formal distinction between the comprehensive-ness and the quality of the information enables us to focus the company’s attention on the questions of materiality and content when one of the key Global Compact principles has not been properly addressed. On the other hand, when the ESG risks and opportunities appear to have been well managed but the information seems poorly communicated

or inaccessible to investors, the experts from the engagement team focus the dialogue on the quality and transparency of the reporting. Companies that publish convincing, comprehensive, high-quality information will probably be able to reduce their risk premium and boost their share price. Successful shareholder engagements should therefore be of direct benefi t to the Cadmos Funds’ investors.

QUALITY ANALYSIS: SIX CRITERIA TO ASSESS THE QUALITY OF THE REPORTING1. Accessibility (information easy to fi nd ) 2. Clarity (information precise and easy to understand) 3. Comparability (year-on-year comparison with competitors) 4. Accuracy (relevance of the collected information) 5. Reliability (confi dence in the accuracy of information) 6. Rapidity (consistent frequency)


By contrast, the analysis of information qual-ity covers all ten principles and seeks rather to determine whether the information published is

suffi ciently credible and accessible and is likely to be taken into account by the fi nancial markets.

COMPREHENSIVENESS ANALYSIS: EIGHT CRITERIA TO ANALYSE THE IMPLEMENTATION OF EACH OF THE TEN PRINCIPLES1. How does the company describe the importance of the principle

the impact of this principle on its activities and performance throughout its value chain2. To what extent does the company express commitment to the principle

explicit and practical undertaking to treat the principle as a responsibility and priority3. How does the company integrate the principle into its strategy

its practical integration into the company’s strategy and processes4. Are the objectives clearly defi ned

how does the company transform its engagement into tangible objectives5. Are the necessary measures properly described

are the actions ensuring proper integration into the company’s day-to day- activities6. What performance-measurement indicators has the company identifi ed

relevant, reliable, ascertainable, comparable7. Is the control system in place

Surveillance and audit procedures as well as corrective actions8. What is the impact of the measures taken

results, performance, successes or failures

Since 2013, we have done more every year to inte-grate the fi nancial materiality of ESG issues into the engagement process. In 2015 we went a step further by introducing the Financial Materiality Focus or FMF, a table that sets out our main long-term ESG concerns.

When the engagement team brings up these fi nancially material ESG factors and express their desire to see the company give them more thought and communicate them more clearly, senior management listens closely. Presented as a means of creating value, the adjust-ments that we deem necessary appear more modest. Businesses are prepared to consent, particularly since the request comes from a loyal investor.

Testimonials from companies in favour of this approach of integrated dialogue motivate us to

continue on the fi nancial materiality path. Early in the process, PPT, together with the engage-ment team, determine the topics that will form the common thread of our shareholder dialogue. We address both the risks and the potential busi-ness opportunities related to the ESG issues. While all ten principles of the Global Compact are systematically analysed and discussed, the FMF has enabled us to highlight those that seem the most critical. The engagement team defi nes the areas with potential for progress, if possible based on the FMF, and these will be monitored continuously from year to year until the targets are reached or a new FMF changes the engage-ment priorities. This approach ensures that we remain leaders in terms of methods of integrating the ESG factors.

FINANCIAL MATERIALITY FOCUS

FINANCIAL MANAGEMENT REPORT

24/51FINANCIAL MANAGEMENT REPORT 2015

PORTFOLIO POSITIONING AND COMPANY UPDATES

PERFORMANCE OF THE EMERGING MARKETS

2015 will be remembered as one of the most torrid years ever for the emerging markets. Despite marked differences between regions, economic growth was modest overall. The main causes were the ineffec-tiveness of the central banks’ monetary policies, the lack of reforms, the weakness in commodity prices and the slackness in global trade. Latin America and EMEA suffered most, while Asia proved more resilient, thanks to improving terms of trade and the relative vigour of China’s services sector.

Most of the emerging markets had to contend with disappointing earnings growth. Corporate profi ts were hit by the decline in household purchasing power due to depreciating currencies and falling real wages, which hampered growth signifi cantly, and by negative operating leverage following years of reckless expansion. Asia’s profi ts outperformed those of the other regions.

It was a turbulent year for foreign exchange: the uncapping of the Swiss franc’s value against the euro, the devaluation of the renminbi, the fall in the euro, and the collapse of many emerging-mar-ket currencies all dealt a blow to confi dence and to companies’ profi ts. The damage might have been worse if some of the local central banks had not reacted by raising their interest rates. Colombia, Brazil and South Africa all took action.

Commodities slid further south, as supply contin-ued to outpace demand. While these adverse conditions partly explain Latin America’s lack-lustre performance, they actually benefi ted some of the other regions such as the Asian countries by reducing production costs.

2015 will be remembered as one of the most torrid years ever for the emerging markets. Despite marked differences between regions, economic growth was modest overall. The main causes were the ineffectiveness of the central banks’ monetary policies, the lack of reforms, the weakness in commodity prices and the slackness in global trade.

The Fund delivered a solid performance in terms of relative value. It benefi ted from a high exposure to China, overweighting of India, the absence of a position in basic materials and a relatively low exposure to energy and fi nancials. The two main weaknesses in our allocation this year were the underweighting of Korea and the overweighting of Brazil.

In 2015, classes A and B of the compartment returned minus 11.79 per cent and minus 10.99 per cent respectively, outperforming the benchmark index

(the MSCI Emerging Markets Index – Net Return), which was even further into negative territory at minus 14.92 per cent.

The Fund does not replicate the index. Its objective is to deliver steady growth of the invested capital. It is actively managed, with the accent on stock pick-ing and value creation, so that the portfolio is best positioned to cope with the different market phases. It invests in companies that present steady earnings growth, a sound balance sheet, a high return on investment and strong free cash fl ow generation.


In 2015, classes A and B of the compartment returned minus 11.79 per cent and minus 10.99 per cent respectively, outperforming the benchmark index (the MSCI Emerging Markets Index – Net Return), which was even further into negative territory at minus 14.92 per cent.

Although the Fund posted a satisfactory relative return in 2015, its earning’s growth suffered from the impact of extreme currency movements on some of the companies. Those hardest hit were the Russian fi rms Magnit (distribution), Mail.ru (Internet) and Yandex (Internet) and Chile’s Empresas Copec (industry). South African MTN (telecommunications) received a huge and unex-pected fi ne from the Nigerian regulator. We brought up this controversy with the company’s senior management, whom we were meeting for the sixth time. The relations of trust that we have estab-lished enabled us to discuss the subject thoroughly and transparently, and the answers to our questions satisfi ed us on the whole. In a sluggish economic climate, Brazil’s rising interest rates penalised CCR (motorways) and Localiza (car rental), as their busi-ness models are capital intensive. Although these companies weighed on the Fund’s earnings growth in 2015, we have no real concerns about their busi-ness models and growth prospects.

Bharat Heavy Electricals (BHEL), a manufac-turer of power plant equipment, is hampered by the considerable time delay between order place-ment and revenue recognition. In addition this is a cyclical activity, since in a country such as India, infrastructure investment depends on fi scal health, the regulatory environment and foreign capital infl ows. These factors became favour-able again only when Prime Minister Narendra

Modi was elected in 2014 and made “electricity for all” his priority. BHEL is the main benefi ciary of this welcome initiative. But despite the orders already placed, the turnover and profi ts have not yet materialised, to the short-term disappointment of some investors.

We are more exposed than ever to China, a sign of our ability to hunt down good ideas. The quality of Chinese businesses is improving, and growth, albeit slower, continues to fuel turnover. Chinese profi ts could make signifi cant strides in the coming years.

The video-games maker NetEase beat our most optimistic expectations by the scale of its success in the mobile games segment. Several of its prod-ucts now top the world charts. We had expected it to do well, in view of its long experience, but not this brilliantly nor this fast. Its share price has risen sharply in the past two years and our portfolio has reaped the benefi ts. The stock is currently trading at 17 times projected 2016 earnings and does not seem overvalued.

Kweichow Moutai (spirits) is gradually regain-ing prestige in the new “corruption-free” China. Despite its high pricing power and profi tability, Moutai is one of the emerging market’s least expen-sive consumer-goods companies. It is trading at 13 times projected 2016 earnings, which seems to us to refl ect neither its quality nor its growth prospects.

280.00

260.00

240.00

220.00

200.00

180.00

160.00

140.00

120.00

100.00

80.00

mar. 09 sep. 09 mar. 10 sep. 10 mar. 11 sep. 11 mar. 12 sep. 12 mar. 14mar. 13 sep. 14sep. 13 mar. 15 sep. 15

Cadmos Emerging Markets Engagement fund (B) MSCI EM - Net Return $

PERFORMANCE SINCE INCEPTION

26/51

PORTFOLIO MOVEMENTS

OUTLOOK

Investors are disenchanted with the emerging markets, as evidenced by the record outfl ows of some 72 billion US dollars in 2015. The developing econo-mies are structurally cyclic and therefore prone to ups and downs, with now being more of a down phase. From that point of view, the market’s behaviour seems rational. And yet, aspiring as they do to a better quality of life, these nations represent a considerable long-term growth opportunity, something that is hard to fi nd in the developed countries. After fi ve consecutive years of economic slowdown, currency devaluations and disappointing performances, the emerging markets are close to bottoming out, but no one can say exactly when that will happen. Investors

should therefore hold onto their positions. And for those with little or no exposure to this market, now is the time to invest.

In this overleveraged world, where corporate bonds are under mounting pressure, emerging debt has proved remarkably (too?) resilient. The global quest for yield is responsible for this dangerous laissez-faire. And the emerging banks are vulnerable: in the growth phase they adopted an aggressive pro-cyclical strat-egy that resulted in excessive loan-to-deposit ratios and insuffi cient reserves. When liquidity dries up, the dynamic reverses. This credit cycle was no different and we can expect to see a surge in doubtful debt.

FINANCIAL MANAGEMENT REPORT 2015

The Fund’s turnover during the past three years represents a holding period of nearly three years. By comparison, Mercer estimates in its 2010 study that on average a company remains in a port-folio scarcely more than eighteen months, and slightly less than two years in the case of respon-sible investment funds.3

As the next table shows, we made more changes than usual to the portfolio in 2015. In fact, the fi rst positions in SAIC were acquired in December 2014. This company is China’s largest carmaker and represents Volkswagen and General Motors. Its size, technology, market share and brands, together with the fact that vehicle penetration remains relatively low in China, make it a promis-ing long-term investment. We also acquired smaller positions in Inner Mongolia Yili, a producer and distributor of dairy products, and in Weifu High-Technology, at the end of the year. Weifu is a joint venture with the Bosch group. It is the leader in China’s fast-growing market for emissions-up-grade automotive components and is also the technological leader in fuel injection systems.

AIA Group also entered the portfolio in 2015. This Hong Kong-listed company is the largest pan-Asian insurer, with a strong presence in almost every market in the region. We also invested in BB Seguridade Participacoes, which is involved in holding activities in Brazil; Bhartil Airtel, the larg-est telecom operator in India; the Mexican group Coca-Cola Femsa, the world’s largest independent bottler of Coca-Cola products; Discovery, a fi nan-cial-services group based in South Africa and active in long- and short-term insurance, asset manage-ment, savings accounts, investment and employee benefi ts; and fi nally, GPA - Companhia Brasileira de Distribuição, the second-largest retail company in Latin America by revenue and the second-larg-est online retailer in Brazil. Also in Brazil, we took advantage of the low share price to increase our exposure to CCR, a motorway operator.

In 2015 we sold the Taiwanese semiconductor company Mediatek, as its barriers to entry were not as solid as we had understood, and the meat processor JBS, the latter after a good performance. We also exited Gail India, Mobile Telesystems OJSC, SAB Miller, Tata Motors and Tenaris in the course of the year.

3. Mercer LLC: “Investment horizons - Do managers do what they say?”; 2010.

As the next table shows, we made more changes than usual to the portfolio in 2015.


As regards the emerging markets’ performance, it is diffi cult to forecast trends in the coming year. Valuations may not have hit bottom and earnings could remain weak; but on the other hand, investors are underexposed and pessimistic. In this context

the Fund is solidly positioned. Its projected earnings growth for 2016 is 11 per cent. Several large positions are signifi cantly undervalued in our opinion, and the new acquisitions should gradually strengthen the Fund’s profi t growth and performance.

COMPOSITION OF THE PORTFOLIO AS AT 31 DECEMBER 2015

Portfolio as at 31.12.2015 Sector CountryAIA GROUPE (New) Insurance Hong Kong BAIDU Technology ChinaBB SEGURIDADE PARTICIPACOES (New) Insurance BrazilBHARAT HEAVY ELECTRICALS Industrial Goods & Services IndiaBHARTI AIRTEL (New) Telecommunications IndiaBHARTI INFRATEL Telecommunications IndiaBRF BRASIL FOOD Food & Beverage BrazilCCR CONCESSOES DE RODOVIAS Industrial Goods & Services BrazilCHINA LIFE INSURANCE COMPANY Insurance ChinaCHINA MOBILE Telecommunications ChinaCIELO Financial Services BrazilCK HUTCHISON HOLDINGS Industrial Goods & Services Hong KongCOCA-COLA FEMSA (New) Food & Beverage MexicoCOCA-COLA HBC Food & Beverage United KingdomCOMGEST GROWTH LATIN AMER. Fund OtherCOMGEST GROWTH-GEM PROM. Fund OtherCOMGEST GROWTH-GROWTH INDIA Fund OtherDISCOVERY (New) Insurance South AfricaEMPRESAS COPEC Oil & Gas ChileFEMSA Food & Beverage MexicoGAIL INDIA (Out) Oil & Gas IndiaGPA CIA BRASILEIRA DE DISTRIBUICAO Retail BrazilHEINEKEN Food & Beverage NertherlandsINFOSYS Technology IndiaINNER MONGOLIA YILI (New) Food & Beverage ChinaJBS (Out) Food & Beverage BrazilKWEICHOW MOUTAI COMPANY Food & Beverage ChinaLOCALIZA RENT A CAR Retail BrazilMAGNIT Retail RussiaMAIL.RU GROUP Technology RussiaMEDIA TEK (Out) Industrial Goods & Services TaiwanMOBILE TELESYSTEMS OJSC (Out) Telecommunications RussiaMTN GROUP Telecommunications South AfricaNASPERS Media South AfricaNATURA COSMETICOS Personal & Household Goods BrazilNETEASE Technology ChinaODONTOPREV Health Care BrazilPING AN INSURANCE Insurance ChinaPOWER GRID INDIA Utilities IndiaSABMILLER (Out) Food & Beverage South AfricaSAIC MOTOR Automobiles & parts ChinaSAMSUNG LIFE INSURANCE Insurance KoreaSANLAM Insurance South AfricaTAIWAN SEMICONDUCTOR TSMC Technology TaiwanTATA MOTORS (Out) Industrial Goods & Services IndiaTENARIS (Out) Basic Resources ArgentinaWEG Industrial Goods & Services BrazilWEIFU HIGH-TEC (New) Automobile & parts ChinaYANDEX Technology Russia


EXERCISE OF VOTING RIGHTS

30/51EXERCISE OF VOTING RIGHTS IN 2015

DISTRIBUTION OF VOTES

At the end of December 2015, the portfolio of the Cadmos – Emerging Markets Engagement Fund comprised thirty-nine companies. We systemati-cally exercised our voting rights, as we had done in 2014. We actually exercised our voting rights on thirty-three companies. The reason is that we voted on three companies that exited the portfolio after their AGMs, while four new companies entered the portfolio after their AGMs, and our shares in fi ve other companies do not carry voting rights (see Summary of results in 2015–2016).

During the period under review we expressed an opinion on 503 items on AGM agendas, repre-senting an average of slightly more than fi fteen items per company. Contrary to the developed countries, the emerging-market countries have seen no signifi cant rise in the number of reso-lutions submitted to the vote in recent years. Nevertheless, corruption scandals at businesses from Brazil to China are increasing the pressure on companies everywhere to improve their gover-nance practices.

Individual compani es are pressing on with their efforts, described in the previous report, to catch up and provide greater transparency. More than 78 per cent of the resolutions submitted to the vote still concern the structure of the board of directors and the capital structure. In both these areas, the standards continue to lag behind those of the European companies today. But we should not forget the situation prevailing in western compa-nies less than twenty years ago, before a series of scandals served as a wake-up call to consciences and the law. Good governance is a learning process and in this, as in other areas, the emerging-market

countries are learning fast. The analysis presented here reveals the board of directors, its structure, its skills and its independence as the main area with potential for progress. Active shareholders such as the Cadmos Funds, supported by an inexora-ble underlying trend, are encouraging businesses to adopt more acceptable standards of gover-nance. Even though international investors tend to underestimate the importance of these issues, they nevertheless fi nd progress on them reassuring. This increased confi dence gradually begins to pay off for investors in the Cadmos Funds by enhanc-ing the valuations of the underlying companies.

Contrary to the developed countries, the emerging-market countries have seen no significant rise in the number of resolutions submitted to the vote in recent years.

DISTRIBUTION OF VOTES

Board of directors43%

Shareholder’s rights 9%

Capital structure35%

Remuneration13%


MAIN OPPOSITIONS

Of the 503 votes cast, we voted against the boards of directors’ recommendations seventy-eight times, that is, in 15.5 per cent of cases. This corre-sponds to the average rate that we have observed over the last three years. The chart below shows that the board’s structure and independence is

still the greatest point of contention (thirty-nine votes or 18.1 per cent against management’s recommendations) together with remuneration (twenty-three votes or 34.3 per cent against management’s recommendations).

The chart below shows that the board’s structure and independence is still the greatest point of contention (thirty-nine votes or 18.1 per cent against management’s recommendations) together with remuneration (twenty-three votes or 34.3 per cent against management’s recommendations).

In the emerging ma rkets, we cast two to three times more votes against management than we did in Europe. Although this rate of opposition is high, it has declined somewhat compared with that of the previous year, refl ecting some improve-ments noted in the transparency and consistency of governance structures and policies.

The main improvements that we observed relate to board structures. In 2014 we opposed fi fty-one

resolutions from a total of 207 (25 per cent). Statistically, the decrease since then is due to the absence of Richemont, but in fact we noticed that certain companies in the Fund had improved their disclosure practices. In the case of Natura Cosmeticos, for example, this allowed us to accept all nine board-related items this year, whereas we had opposed two of the eleven in 2014 owing to a lack of information.

Themes Nb. Vote Against %1- Board of directors 216 39 18.1%2- Remuneration 67 23 34.3%3- Capital structure 175 15 8.6%4- Shareholders’ rights 45 1 2.2%Total 503 78 15.5%

250

200

150

100

50

0

DISTRIBUTION OF OPPOSING VOTES

39

23

1

For Against

1. Board of directors 2. Remuneration 3. Capital structure 4. Shareholder’s rights

15

177

44

160

44


ANALYSIS OF VOTES BY TOPIC

The first topic addressed in our voting guidelines – the structure of the board of directors – is of fundamental importance to a company’s develop-ment and was the most controversial in absolute terms in the 2015 voting season. After the AGM, the board is the highest organ of management, defining the strategy to follow, appointing the senior management that will apply that strategy, and rewarding or sanctioning it according as

the objectives are reached. A board of directors must be a cohesive and competent team, avail-able to attend the meetings and able to discuss and evaluate management’s performance freely and openly.

The table below lists the fourteen companies where we challenged at least one item on the agenda concerning the board structure.

VOTES CONCERNING: BOARD OF DIRECTORS

Name Country Vote # Dissent % DissentBHARAT HEAVY ELECTRICALS India 5 5 100%BHARTI AIRTEL India 2 1 50%CHINA LIFE INSURANCE COMPANY China 16 1 6%CHINA MOBILE China 3 1 33%CIA BRASILEIRA DE DISTRIBUICAO Brazil 3 2 67%CK HUTCHISON HOLDINGS Hong Kong 19 27 89%JBS Brazil 2 1 50%LOCALIZA RENT A CAR Brazil 9 1 11%MTN GROUP South Africa 10 1 10%NASPERS South Africa 10 2 20%NETEASE China 7 1 14%PING AN INSURANCE China 22 3 14%POWER GRID INDIA India 2 2 100%YANDEX Russia 3 1 33%

This table and the next show that despite some improvements compared with the previous year we remain unconvinced of the independence of some companies’ boards. Those board members not considered independent are executive members or those that were executive members in recent years, and directors representing a signifi cant shareholder, or engaged in substantial business dealings with the company, or related to a member of senior management or having cross-directorship links with another director.

For two Indian companies, Bharat Heavy Electricals and Power Grid India, we opposed 100 per cent of the votes related to board independence. Both companies are chaired by an executive director and both have boards half of whose members are not independent. We voted against all the non-in-dependent nominees of these companies. At CK Hutchison we voted against seventeen of the nine-teen board-related resolutions, mainly because less than a third of its board members are indepen-dent. In such cases, Comgest applies stricter rules than usual and will generally also refuse to support directors serving on too many boards.

BOARD OF DIRECTORS


VOTES CONCERNING: BOARD OF DIRECTORS

Name Description Our objectionsBHARAT HEAVY 3) Re-elect A. Sobti as Director Lack of independenceELECTRICALS 4) Re-elect S.K. Bahri as Director Lack of independence 8) Elect R.K. Singh as Director Lack of independence 9) Elect d. Bandyopadhyay as Director Lack of independence 10) Elect A. Mathur as Director Lack of independenceBHARTI AIRTEL 3) Elect T.y. Choo as Director Lack of independenceCCR CONCESSOES 4) Fix Number and Elect Directors Lack of independenceDE RODOVIAS 1) Elect Directors Lack of independenceCHINA LIFE INSURANCE 11) Elect Miao Jianmin as Director Attendance less than 75%CHINA MOBILE 4.2) Elect A. Sobti as Director Too many mandatesCK HUTCHISON 2a) Elect Moses Cheng Mo Chi as Director Board Member + 80 years oldHOLDINGS 2b) Elect Li Ka-shing as Director Lack of independence 2c) Elect Fok Kin Ning, Canning as Director Lack of independence 2d) Elect Chow Woo Mo Fong, Susan as Director Lack of independence 2e) Elect Frank John Sixt as Director Lack of independence 2f) Elect Kam Hing Lam as Director Lack of independence 2g) Elect Lai Kai Ming, Dominic as Director Lack of independence 2h) Elect Chow Kun Chee, Roland as Director Lack of independence 2i) Elect Lee Yeh Kwong, Charles as Director Lack of independence 2j) ElectLeung Siu Hon as Director Lack of independence 2k) Elect Geoges Colin Magnus as Director Lack of independence 2l) Elect Cheng Hoi Chuen, Vincent as Director Too many mandates 2n) Elect Know Tun-li, Stanley as Director Board Member + 80 years old 2o) Elect Lee Wai Mun, Rose as Director Lack of independence 2p) Elect William Shurniak as Director Board Member + 80 years old 2q) Elect Wong Chung Hin as Director Board Member + 80 years old 3) Elect Cheng Hoi Chuen, Vincent as Director Too many mandatesJBS 3) Elect Directors Lack of independenceLOCALIZA RENT A CAR 4.4) Elect Flavio Brandao Resende as Director Lack of independenceMTN GROUP 1.4) Re-elect Jan Strydom as Director Lack of independenceNASPERS 5.4) Re-elect Ben van der Ross as Director Too many mandates 6.2) Re-elect Ben van der Ross as Member of the Audit Committee Too many mandatesNETEASE 1f) Re-elect Michael Leung as Director Too many mandatesPING AN INSURANCE 6.2) Elect Sun Jianyi as Director Too many mandates 6.9) Elect Soopakij Chearavanont as Director Attendance less than 75% 6.10) Elect Yang Xiaping as Director Lack of independencePOWER GRID INDIA 3) Re-elect R.P. Singh as Director Lack of independence 4) Re-elect R.P. Sasmal as Director Lack of independenceYANDEX 4)Re-elect John Boynton as Non-Executive Director Lack of independence


VOTES CONCERNING: REMUNERATION

Name Description Our objectionsBHARTI INFRATEL 1) Approve Implementation of ESOP Scheme Excessive remuneration 2) Approve Employee Stock Option Scheme Excessive remuneration 3) Approve Stock Option Plan Grants to Employees Excessive remuneration 4) Approve Acquisition by ESOP Trust of Shares of the Company Excessive remunerationBRF SA 1) Approve Remuneration of Company’s Management Lack of transparency 2) Amend the Company’s Stock Option Plan Remuneration short term oriented and Restricted Share PlanCCR CONCESSOES 6) Approve Remuneration of Company’s Management Lack of transparencyDE REDOVIASCIELO 4) Approve Remuneration of Company’s Management Lack of transparencyCOCA-COLA HBC 5.1) Amend Articles of Association Remuneration short term oriented 5.2) Adopt the amendment Stock Option Plan Remuneration short term oriented 6) Approve the Remuneration Reports Lack of transparencyJBS 5) Approve Remuneration of Company’s Management Lack of transparencyNASPERS 7) Approve Remuneration Policy Excessive remuneration 10) Approve the Trust Deed of the Restricted Remuneration short term oriented Stock Plan 11) Approve Amendments to the MIH Remuneration short term oriented Holdings Share Trust Deed NATURA COSMETICOS 1) Approve Stock Option Plan Excessive remuneration 2) Approve Restricted Stock Plan Excessive remuneration 3) Amend Remuneration of Company’s Management Lack of transparency 5) Approve Stock Option Plan Remuneration short term oriented 6) Amend Restricted Stock Pla Remuneration short term oriented 7) Amend Global Remuneration for Fiscal Year 2015 Excessive remunerationTATA MOTORS 4) Approve Minimum Remuneration of R. Pisharody No control mechanism 5) Approve Minimum Remuneration of S. Borwankar No control mechanism

Except for Cielo, all the Brazilian companies on the above list had posed similar remuneration prob-lems in 2014. In most cases, we are unable to obtain the information needed to assess the appropriate-ness and structure of the total package. The lack of transparency, and the focus on near-term perfor-mance in what documentation does exist are the

key reasons for our votes against management. In some instances, the companies do not disclose the remuneration of their highest-paid director, which is not consistent with the compensation disclosure requirements of the Brazilian securities regula-tor. In other cases, issues are lumped together or poorly defi ned.

VOTES CONCERNING: REMUNERATION

Name Country Vote # Dissent % DissentBHARTI INFRATEL India 4 4 100%BRF BRASIL FOOD Brazil 2 2 100%CCR CONCESSOES DE REDOVIAS Brazil 1 1 100%CIELO Brazil 1 1 100%COCA-COLA HBC United Kingdom 5 3 60%JBS Brazil 1 1 100%NASPERS South Africa 19 3 16%NATURA COSMETICOS Brazil 7 6 86%TATA MOTORS India 5 2 40%

We have a lready mentioned executive pay, an issue that led us to oppose at least one recom-mendation of nine AGMs. We remain at a fairly high level of 34 per cent dissenting votes, three times higher than for the European companies.

Comgest is demanding in terms of transparency and robust structures and had already adjusted its voting guidelines to the European norms. Below we present the nine companies where we were unable to back all the pay resolutions in 2015.

REMUNERATION


Although voices are still being raised against the continuing cases of excessive pay, we note that overall the latter have become less arbitrary and more likely to be justifi ed by the achievement of longer-term targets. Rare are the governing bodies that take their AGM lightly. The shareholders have clearly won a round. From routine exercises with little at stake and voting results that barely excited comment during the drinks afterwards, the AGMs are developing into meticulously orchestrated meetings where executives and directors are well prepared to face their shareholders.

The application of quantitative and often simplistic golden rules seems to us ill suited to the diversity and complexity of the companies. Our voting guidelines cite principles of which we either approve or disap-prove. Our results show that we punish excesses and grant more fl exibility to companies that pay a “sustainable dividend”. The latter is a divi-dend that rewards the long-term investors that we defend through the visibility that it provides as regards the valuation of the underlying secu-rity. A company of this type is distinguished by its policy of creating value for, and distributing it to, its shareholders. This added value must also

benefi t salaried employees, the company (equity) and the community (taxes), to avoid an imbalance that would ultimately penalise the shareholders.

There are fewer fl agrant excesses and most of the outbidding tactics have been curbed. But the issue is still newsworthy and will remain controversial as long as these pay packages are not truly aligned with the shareholders’ interests and understood by the public. The majority of the resolutions are still accepted but shareholders’ approval rates are diminishing every year. Fortunately, the increased transparency that we enjoy today greatly improves our ability to assess the correspondence between the company’s performance and the remuneration proposed. This positive development means that our portfolio manager is better equipped to judge whether senior managements’ interests are aligned with our own. We encourage the companies to work with two types of capped variable pay. The annual bonus rewards individual performance during the year but must also depend on the company’s results. However, we prefer long-term remuneration plans paid in shares or options and based on demanding performance targets tied to the company’s results in the following three years.

CAPITAL STRUCTURE

Our third topic relates to all the AGM resolu-tions regarding capital distribution or structure. We also include in this category the approval of the accounts and election of the auditor. These two subjects are closely linked to the required fi nan-cial and accounting consistency. Again, as in the previous year, this was a less controversial topic, with only 8.6 per cent opposition to the board’s

proposals. Nevertheless, the fi nancial consequences of each vote are direct and often material. Voting on a capital increase intended for an acquisition or a redistribution of capital requires an excel-lent understanding of the company, its balance sheet and, above all, its business model. Below are the seven companies that received at least one opposing vote regarding their capital structure.

VOTES CONCERNING: CAPITAL STRUCTURE

Name Country Vote # Dissent % DissentCHINA LIFE INSURANCE COMPANY China 11 1 9%CHINA MOBILE China 6 2 33%CK HUTCHISON HOLDINGS Hong Kong 8 2 25%DISCOVERY South Africa 7 1 14%NASPERS South Africa 8 5 56%PING AN INSURANCE China 8 1 13%YANDEX Russia 8 3 38%

Comgest has established strict rules to prevent existing shareholders’ suffering discrimination or dilution in the event of a capital increase with or without preferential subscription rights. This topic concerned all of the companies mentioned here. In the case of Yandex, we voted against the proposal to authorise the board of directors to issue shares, as this would entitle the management board to issue shares up to 247 per cent of the issued

share capital. Furthermore, the authorisation to issue shares would last for sixty months; and the company would have the right to issue preference shares that could be used to thwart a takeover bid. We also voted against Resolution 8 at Naspers, as authorisation could involve the issue of new Class A ordinary shares, which have multiple voting rights and therefore perpetuate the company’s dual-class share structure.


SHAREHOLDERS’ RIGHTS

In the fourth topic, on shareholders’ rights, we have grouped all the items related to equal treat-ment of shareholders, anti-takeover measures and statutory changes. In 2015, we opposed only one item, compared with four in previous year.

We opposed the item “Transaction of Other Business” put forward by Empresas Copec,

which would authorise the vote on a new reso-lution proposed during the AGM. We thus avoid giving the board a blank cheque and discriminating against shareholders that vote remotely. Useful or critical resolutions on shareholders’ rights are still rare in the emerging markets.

VOTE CONCENING: SHAREHOLDERS’ RIGHTS

Name Vote # Dissent % Dissent Description Our objectionsEMPRESAS COPEC 1 1 100% 6 Other Business Other subjects unknown - refused.

VOTES CONCERNING: CAPITAL STRUCTURE

Name Description Our objectionsCHINA LIFE INSURANCE 22) Approve Issuance of Equity- Excessive dilution Linked Securities without Preemptive Rights CHINA MOBILE 7) Approve Issuance of Equity- Excessive dilution Linked Securities without Preemptive Rights 8) Authorize Reissuance of Repurchased Shares Excessive dilutionCK HUTCHISON 5.1) Approve Issuance of Equity- Excessive dilutionHOLDINGS Linked Securities without Preemptive Rights 5.3) Authorize Reissuance of Repurchased SharesDISCOVERY 2) Authorize Reissuance of Repurchased Shares Excessive dilutionNASPERS 8) Place Authorized But Unissued Shares Excessive dilution and multiple under Control of Directors dasses of shares 9) Authorized Board to Issue Shares for Cash Multiple dasses of shares under Control of Directors 2) Approve Financial Assistance in Terms Item must be separated of section 44 of the Act 4) Authorize Reissuance of Repurchased Shares Excessive dilution 5) Authorize Reissuance of Repurchased Shares Lack of transparency PING AN INSURANCE 10) Approve Issuance of Equity or Equity-Linked Excessive dilution Securities without Preemptive Rights YANDEX 9) Grant Board Authority to Issue Shares Excessive dilution 10) Authorize Board tio Exckude Preemptive Excessive dilution Rights from Share Issuance iunder item 9 11) Authorize Repurchase of Up to 20 Percent Excessive dilution of Issued Share Capital

SHAREHOLDER ENGAGEMENT

38/51SHAREHOLDER ENGAGEMENT 2015 – 2016

As outlined in the introduction, during this reporting cycle we were able to hold discussions with twenty-two of the thirty-six assessed compa-nies in the portfolio, allowing us to maintain an engagement rate slightly above 60 per cent.4 This level of engagement is unique in the context of emerging-market companies. It is especially high considering that eight new companies entered the portfolio in 2015 and four others were assessed for the fi rst time, having entered late in 2014. Credit

for this success must go to the dedication of the engagement team and the overall stability of the portfolio.

Of the twenty-two meetings, fi ve were on-site visits to Beijing, Cape Town and Johannesburg (23 per cent). This outstanding result was achieved despite the fact that the majority of the companies in the compartment (19, or 53 per cent) are not signatories to the Global Compact.5

IMPACT OF THE UN GLOBAL COMPACT ENGAGEMENT

Of the fourteen companies that were assessed but with whom we did not manage to organise a meeting, ten (71 per cent) are not signatories to the Global Compact. It is always more diffi cult to address the ten principles with such companies, some of whom may be unaware of the very exis-tence of this worldwide initiative.

These remarkable and stable results, shown in the following charts, testify to the credibility that the Cadmos Funds have acquired in the eyes of the emerging-market companies.

As outlined in the introduction, during this reporting cycle we were able to hold discussions with twenty-two of the thirty-six assessed companies in the portfolio, allowing us to maintain an engagement rate slightly above 60 per cent.

4 . It was not possible to schedule a meeting this year with Baidu, Bharat Heavy Electricals, Bharti Airtel, Bharti Infratel, BRF Brasil Food, Infosys, Kweichow Moutai, Naspers, Netease, Ping An Insurance, Power Grid India, Samsung Life, Weifu High-Technology and Yandex. BB Seguridade, Coca-Cola Femsa and Inner Mongoiala entered the portfolio too late in the year for a fi rst assessment and meeting.

5 . The nineteen companies are: Aia Group, Bharti Airtel, Bharti Infratel, China Life, CK Hutchison, Coca-Cola HBC, Kweichow Moutai, Localiza Rent a Car, Magnit, Mail.Ru, Naspers, Netease, Ping An Insurance, Power Grid India, Saic Motor, Samsung Life, TSMC, Weifu High-Technology and Yandex.

CONTACT WITH THE COMPANIES IN THE COMPARTMENT

70%

80%

60%

50%

40%

30%

20%

10%

0%

Dialogue No dialogue during timeframe

2012-2013 2013-2014 2014-2015 2015-2016


The Cadmos Funds’ “soft power” engagement is clearly conducive to a dialogue that is both influential and constantly constructive.

Many companies emphasise the value of this exchange of ideas. At Odontoprev, for example, we were able to get together with three manage-ment representatives including the chief executive. TSMC was represented by six high-level represen-tatives from various units. They all welcome the opportunity to explore new ways of improving their company’s reporting or conveying to main-stream investors that sustainability management strengthens a company’s business model.

More and more companies now contact us on their own initiative to pursue the previous years’ discussion. They are speaking out publicly about their desire for a healthy dialogue with their stake-holders. But they are also increasingly critical of

over-simplifi ed exclusion criteria, ratings and other ESG classifi cations that are often compiled once a year based on laborious questionnaires. The Cadmos Funds’ “soft power” engagement is clearly conducive to a dialogue that is both infl uential and constantly constructive.

Although the dialogue must maintain a certain rate of engagement to be infl uential, that ratio does not suffi ce to judge its effect. With that in mind, we use a scale of six levels, designed to provide a transparent measure of the extra-fi nancial impact of the UN Global Compact engagement with the companies. The following table shows the evolu-tion over the last two reporting cycles.

The effectiveness targets set for the Cadmos Funds are ambitious. Our fi rst goal is to create a continu-ing dialogue with all the companies, represented by level 3. We have reached that level with sixteen of the thirty-six assessed companies (44 percent), which is already quite impressive for the emerging markets.

The second goal is to demonstrate that year on year we are increasing the proportion of companies

that have reached level 5. Again in this reporting period, eight companies (22 per cent) reached that level, meaning that they had improved on at least one weak point that had been raised.

The evolution can be quantifi ed by tracking the average level of engagement over time. Today the average stands at 2.69, where it has remained stable over the last fi ve years.

2014-2015 2015-2106 Level Description 0 0 (6) (Recommendations publicized) 8 8 5 Shows improvements on at least one weak point raised 6 7 4 Approves the progress objectives clearly specifi ed 6 1 3 Displays awareness and accepts the principle of an annual dialogue 3 6 2 Agrees to a detailed discussion about our assessment 10 14 1 Acknowledges receipt of our assessment

ENGAGEMENT LEVEL OF COMPANIES (#)

DISTRIBUTION OF ENGAGEMENT LEVEL : 2010-2016

Level 6

Level 5

Level 4

Level 3

Level 2

Level 1

Average

2010-2011

1.43

2011-2012

2.61

2012-2013

2.69

2013-2014

2.62

2014-2015

2.97

2015-2016

2.69

40/51

Three new companies: CCR Concessoes de Rodovias, Localiza Rent a Car, and Heineken, reached level 5 in 2016. Our experts got together with Heineken for the sixth time, and this continu-ity was refl ected in a reliable discussion about the progress achieved over time. In its 2012 sustainabil-ity report, Heineken had already mentioned our dialogue’s positive contribution to the company’s social responsibility policy. CCR and Localiza were upgraded, as we have noticed that these companies act on our feedback year after year to improve the comprehensiveness of their sustain-ability reports. Together with China Life, CK Hutchison and Taiwan Semiconductor, which were also upgraded, they are described in greater detail in the chapter “Improvements and main stories” on pages 31ff.

Despite excellent meetings, we downgraded China Mobile and MTN to level 4, “Approves the prog-ress objectives clearly specifi ed”, since in the main, they have yet to follow through on the previous year’s recommendations. For China Mobile, we still recommend constructing a materiality matrix and introducing and publishing a code of conduct. MTN, on the other hand, should publish more information on labour norms, which are partic-ularly relevant to South Africa. Both companies showed a genuine interest in our discussion and MTN indicated that further support might be needed. For these companies, timing seems to be a more relevant issue than motivation. We also downgraded Baidu, Bharti Infratel, Naspers and Yandex to level 1, as we were unable to engage with them as we had in the previous year.

6 . Institut de Hautes Études Internationales et du Développement – IHEID.

IMPACT OF THE FINANCIALLY MATERIAL ENGAGEMENT

The preliminary identifi cation of the Financial Materiality Focus confi rms our projections: the princi-ples relating to human rights and complicity in human rights abuses in the value chain cover the issues that we consider the most fi nancially material (for some 60 per cent of our companies). They embrace broad concepts that deal with the physical integrity (health, safety etc.) and moral integrity (human dignity, right to personal image and honour, respect for the private sphere etc.) of consumers and communities. Businesses in the food, healthcare, telecommunications, fi nance and media industries are particularly vulnerable and are directly penalised by reputational issues.

In the case of the industrial goods & services or energy providers and technology companies, (about 25 per cent of the companies) we are more concerned about the three environmental principles. For industry and services in particular the anti-corruption princi-ple is a major risk factor. Lastly, and primarily for the emerging markets companies that we follow which are human resources intensive, the four principles related to international labour standards constitute a fi nan-cially material threat.

SHAREHOLDER ENGAGEMENT 2015 – 2016

THE PRELIMINARY IDENTIFICATION OF THE FINANCIAL MATERIALITY FOCUS CONFIRMS OUR PROJECTIONS: THE PRINCIPLES RELATING TO HUMAN RIGHTS AND COMPLICITY IN HUMAN RIGHTS ABUSES IN THE VALUE CHAIN COVER THE ISSUES THAT WE CONSIDER THE MOST FINANCIALLY MATERIAL

Nevertheless, we remain convinced that the applica-tion of the UN Guiding Principles on Business and Human Rights, known as the “Ruggie Principles”, continues to represent the main challenge for large multinational companies. These princi-ples, endorsed unanimously by the UN Human Rights Council in June 2011 and supported by the OECD, the European Union and some leading businesses, require that states and companies take new measures to avoid direct or indirect human

rights abuses in their cross-border activities. To help businesses grasp the issues at stake and incite them to play a leading role, we organised a confer-ence in January 2014 at the Graduate Institute in Geneva, addressed by Professor John Ruggie and attended by more than fi ve hundred people.6

The following table presents a selection of the FMFs of the Fund’s underlying companies as discussed with them.


Portfolio as at 31.12.2015 Financial Materiality Focus

AIA GROUPE (New) Integrity and reliability of the insurance products and related marketing Innovation of inclusive fi nancial services and internet-based fi nancial servicesBAIDU Green IT issues (energy effi ciency, waste management, etc.) Data safety and privacyBB SEGURIDADE Integrity and reliability of the insurance products and related marketingPARTICIPACOES (New) Innovation of inclusive fi nancial services and internet-based fi nancial servicesBHARAT HEAVY ELECTRICALS Public contracts - risks of bribery and corruption Energy and ressource effi ciencyBHARTI AIRTEL (New) Data security and privacy Energy effi ciency (data centers)BHARTI INFRATEL Energy and ressource effi ciency Labour standards (remuneration, helath & safety, freedom of association)BRF BRASIL FOOD Product health & safety Labour standards (remuneration, helath & safety, freedom of association)CCR CONCESSOES Energy and ressource effi ciencyDE REDOVIAS Public contracts - risks of bribery and corruptionCHINA LIFE INSURANCE Integrity and reliability of the insurance products and related marketingCOMPANY Innovation of inclusive fi nancial services and internet-based fi nancial servicesCHINA MOBILE Human rights issues (temporary migrant workers) Data security and privacyCIELO Allocation of fi nancial services - process for analysing client’s ESGCK HUTCHISON HOLDINGS Anti-corruption strategyCOCA-COLA FEMSA (New) Product health & safety Opportunities for helathier productsCOCA-COLA HBC Product health & safety Opportunities for helathier productsCOMGEST GROWTH LATIN AMER. FundCOMGEST GROWTH-GEM PROM. FundCOMGEST GROWTH INDIA FundDISCOVERY (New) Integrity and reliability of the insurance products and related marketing Innovation of inclusive fi nancial services and internet-based fi nancial servicesEMPRESAS COPEC Environmental footprint Human rights issues in the value chainFEMSA Product health & safety Opportunities for helathier productsGAIL INDIA (Out) ExitGPA CIA BRASILEIRA DE Labour standardsDISTRIBUICAO Fair marketing and advertisingHEINEKEN Product health & safety Opportunities for helathier productsINFOSYS Data security and privacy Diversity and skills managementINNER MONGOLIA YILI (New) The provision of healthy, nutrient-rich and safe food Responsible sourcingJBS (Out) ExitKWEICHOW MOUTAI Ethical marketing practicesCOMPANY Product health & safetyLOCALIZA RENT A CAR Environmental footprint Customer welfareMAGNIT Labour standards Fair marketing and advertising


Portfolio as at 31.12.2015 (continued) Financial Materiality Focus (continued)

MAIL.RU GROUP Data security and privacy Environmentally friendly technologiesMEDIA TEK (Out) ExitMOBILE TELESYSTEMS OJSC (Out) ExitMTN GROUP Data security and privacy Responsibel marketingNASPERS Data security and privacy Responsible marketingNATURA COSMETICOS Product safety Environmental technology (better effi ciency and substitution)NETEASE Green IT issues (energy effi ciency, waste management, etc.) Data security and privacyODONTOPREV Safety and dental care services Integrity and reliability of the insurance products and related marketingPING AN INSURANCE Integrity and reliability of the insurance products and related marketing Innovation of inclusive fi nancial services and internet-based fi nancial servicesPOWER GRID INDIA Energy and environmental challenges (climate change) Anti-corruption issuesSABMILLER (Out) ExitSAIC MOTOR Life-cycle impact and emissions New technologiesSAMSUNG LIFE INSURANCE Integrity and reliability of the insurance products and related marketing Innovation of inclusive fi nancial services and internet-based fi nancial servicesSANLAM Integrity and reliability of the insurance products and related marketing Innovation of inclusive fi nancial services and internet-based fi nancial servicesTAIWAN SEMICONDUCTOR TSMC Energy effi ciency Supply chain managementTATA MOTORS (Out) ExitTENARIS (Out) ExitWEG Labour standards (remuneration, helath & safety, freedom of association) Resource effi ciency and ecological impact of its productsWEIFU HIGH-TEC (New) Life-cycle impact and emissions New technologiesYANDEX Green IT issues (energy effi ciency, waste management, etc.) Data security and privacy

43/51

IMPROVEMENTS AND MAIN STORIES

He re w e provide examples of companies that have acted on our recommendations or have an interesting story to tell.

AIA GROUP

We begin with AIA Group, the leading pan-Asian insurer with a strong presence in almost every market in the region. For this company, as for most insur-ers based in the emerging markets, we believe that the most relevant, fi nancially material ESG crite-ria are the integrity and reliability of the insurance products and marketing, and innovation in the area of inclusive and Internet-based fi nancial services.

While not a signatory of the Global Compact, AIA Group publishes fairly advanced informa-tion on issues related to human rights. We have suggested that it sign both the United Nations Global Compact and the United Nations Principles for Responsible Investment.

This was our fi rst meeting with the company, which entered the portfolio in 2015. We discussed our

assessment with the head of investor relations and the head of social responsibility. They replied to questions frankly, and asked for best-practice advice, based on how other insurance companies managed their sustainability issues. We have gained valuable insights and are able to provide such advice, as we have been engaging with some of the best insur-ance companies around the world for many years.

In the coming years, we expect AIA Group to publish data according the GRI framework. We advised the company to identify key material sustainability issues related to human rights, the environment, labour and anti-corruption as well as to set up targets, indicators and a monitoring system. In particular we noted that disclosure on the protection of labour rights was very limited and confi ned to diversity and non-discrimination.

This was our fourth discussion with this Brazilian company, which operates motorways in the states of Sao Paulo and Rio de Janeiro and has also diversifi ed into technological transport services.

We were hoping for signs of change, as we had noticed previously that the quality of the sustainability reports was going down. Furthermore, the sustainability information on the company’s website is diffi cult to access. Important documents are found only via a web search or are available only in Portuguese.

During our call, CCR announced that it would publish its next sustainability report in accordance

with the GRI G4 and IIRC guidelines. The company has joined the Business Network group set up by the International Integrated Reporting Council (IIRC), which leads the global Integrated Reporting movement. CCR’s report will address seventeen material sustainability aspects, and will adopt a consistent structure, similar to that of the Guilé engagement team’s analytical criteria. The representatives also explained that they were using our feedback internally to improve the sustainability reporting. We upgraded the company from level 4 to level 5 as our recommen-dation had clearly been implemented.

CCR CONCESSOES DE RODOVIAS


CHINA LIFE INSURANCE COMPANY

China Life is China’s largest life insurer, with 40 per cent of the market (twice the share of its closest competitor). 2015 was the company’s sixth consecutive year in the Fund and we were meet-ing its management for the fi fth time. Once again we had a very constructive discussion, which took place in Beijing with the head of social responsi-bility, who seems very committed. She was keen to learn from the external assessment conducted by

the engagement team and was very open about the challenges that she faces internally due to China Life’s organisational structure.

For example, no one has strategic responsibility at the board of directors or executive board level. And offi cially, there is no dedicated group-wide organ-isation or network to support her in promoting or implementing sustainability measures within the different business lines or away from the centre.

44/51

She was therefore particularly eager to obtain ideas and references from other Cadmos compa-nies, with a view to increasing internal awareness and ownership of social responsibility. We recom-mended building an internal social-responsibility network with representatives from the business lines or major locations, or both, primarily in Mainland

China, as well as setting up a dedicated committee at board level. These suggestions were well received, justifying the upgrade to engagement level 4. We hope that this manager succeeds, as that would help raise the standing of sustainability management within the group from that of a mainly philanthropic activity to one of strategic importance to its core business.

CK HUTCHISON HOLDINGS

The company was formed as recently as March 2015, through the merger of Cheung Kong Holdings and its main associate company Hutchison Whampoa, which had been in the Fund’s portfolio for the past three years. Despite the timing, the new company agreed to a fi rst discussion, prompting us to award CK Hutchison Holdings engagement level 2.

As a conglomerate active in a range of businesses –ports, telecommunications, energy and distribution

–the company faces a number of challenges in terms of its sustainability management and reporting. It is exposed to all the ESG issues, but we focused on anti-corruption, which is well covered, with infor-mation on both strategic and operational aspects.

The company representative was particularly interested in some of the reporting challenges. It became clear that the sustainability issues and their communication are also being discussed internally.

DISCOVERY

GPA is among the eight new companies enter-ing the portfolio in 2015. It is a leading Brazilian retailer in both the food and electronic categories. The company’s business is based on a multi-format structure with a mix of supermarkets, hypermar-kets, convenience, cash and carry, stores selling electronic products and household appliances (Via Varejo), and e-commerce operations (Cnova). GPA is controlled by France’s Casino Group.

As GPA is a retail company, all the ESG issues are material to its business. Among the societal aspects, product information, product safety and labour conditions are of particular importance.

The company makes commitments to every princi-ple of the UN Global Compact except freedom of association. But overall, it provides little informa-tion on how performance is monitored and what has been achieved.

Discovery is a dynamic South African insurance company. Originally a pure private health insurer, it has developed into a diversifi ed insurance business with best-in -class underwriting margins, under-pinned by a globally recognised science-based wellness programme called Vitality.

Discovery also entered the Fund in 2015. Three high-level representatives joined us at the headquarters for this fi rst meeting: the deputy general manager (fi nance), the senior sustainability specialist and the head of content marketing.

The company’s main objective is to provide innovative, affordable insurance products, ranging from those that extend access to quality medical care to people on low incomes, to others conceived to enhance economic and fi nancial security. Discovery also invests in projects and initiatives aimed at including more of the South African population in the economy, for example by

supporting small- and medium-sized enterprises, and providing training for young people.

Discovery’s reporting on the UN Global Compact principles represents a promising start. Overall, the report refl ects a solid commitment to sustainability and the established sustainability governance struc-tures. However, issue-specifi c policies are not publicly disclosed and the information on some of the principles remains fragmented. This last problem occurs because the quantitative goals are fractional, making it diffi cult to put the achievements or non-achievements into context.

The company announced that it would consider disclosing the existing sustainability policies (Code of Conduct, HR policies, and Ethics and Anti-Corruption Policy etc.). Furthermore, the GRI index will be expanded next year with more relevant indicators.

Despite the promising signs we decided to upgrade Discovery to level 2 only.


GPA CIA BRASILEIRA DE DISTRIBUICAO


When we pointed out that the reporting contained almost no quantitative goals, the head of sustain-ability said that they were in the process of breaking down Casino Group’s global targets for GPA.

She has joined the company from Casino Group, and we could already detect her infl uence in the action under way on several sustainability issues. We expect to see signifi cant progress in the coming years and therefore set the engagement level at 2.

LOCALIZA RENT A CAR

For the third time since this company entered the Fund’s portfolio three years ago, we enjoyed a very constructive meeting with its representative.

In 2015 we upgraded Localiza’s engagement level from 3 to 5, as it had acted on at least two of our previous recommendations.

In 2014, we had asked for a more systematic approach to the general area of human rights and to the ILO labour standards. We wanted to see a

complete set of goals and activities as well as the disclosure of achievements or non-achievements. Localiza’s new social balance sheet does indeed include some human rights indicators and achieve-ments that are increasing the company’s quality.

Also in 2014, we had advised Localiza to include more specifi c data in its reporting on the envi-ronmental principles. It now mentions goals and indicators, but we hope to see more in the coming years on this fi nancially material topic.

ODONTOPREV

As with Localiza, so with OdontoPrev, this was our third very productive meeting since the company entered the Fund three years ago. The difference is that OdontoPrev was already at level 5 in 2014.

As a healthcare provider (dental insurer) OdontoPrev faces sustainability challenges including hygiene, recycling of amalgam and other materials, energy- and resource effi ciency, anti-corruption and regulation. The safety of dental-care services and access for low-income customers are also important issues.

In July 2013, we conducted a comparative study to help OdontoPrev discover the multinationals’ best practices in terms of social and environmental responsibility. The company’s aim was to defi ne its own goals, strategy and implementation measures in order to produce high-quality ESG reporting. When the results of the study were presented, the head of investor relations said that it was “a dream for us [OdontoPrev] to be able to learn from the best

peers such as Novo Nordisk and Natura which are constituents of the Cadmos Funds.”

He added that the Guilé engagement team’s document had played an essential role in drawing the attention of the board of directors and senior management to the company’s own ESG issues. At the time, given the technical, fi nancial and manpower constraints and the company’s other established priorities, he saw the task of putting the recommendations into practice within a reasonable deadline as a formidable challenge.

Today, OdontoPrev is reporting progress on all four categories of the Global Compact principles, and the structure of the COP is better than in the previous year. But the information and data provided remain at an emerging level. The chief executive participated in the call, which indicates the company’s grow-ing awareness of the social responsibility issues. OdontoPrev seems to be moving in the right direc-tion and keen to continue improving.

SAIC MOTOR

SAIC Motor is China’s largest carmaker and is widely acknowledged to be the long-term leader in the Chinese auto market, ahead of all the smaller players. It represents Volkswagen and Buick, the strongest brands in China’s foreign mass-market segment, while its own brand, Roewe, is perceived as the best local brand. The company’s scale and reliability provide a signifi cant cost advantage and the highest profi tability in the industry.

The main challenges for SAIC Motor are: manag-ing high R&D costs; meeting tight Chinese and

international regulations on GHG emissions and pollution; bringing out an electric car; attracting skilled employees; and maintaining its brand image and reputation as a responsible automotive company.

We analysed and engaged with SAIC for the fi rst time, as the company had entered the portfolio late in 2014.

The management team were very interested in our assessment methodology and results. They responded frankly to questions and asked for best practice examples of sustainability management

46/51

and reporting. SAIC Motor is aware of the impor-tance of improving its sustainability disclosure. It is proud of its leading position in China’s car market, especially in fi nancial services for the automotive and electric automotive sectors. On the subject of globalisation, the management team said that it was too early for SAIC Motor to go global and compete in foreign markets. But the company’s vision was to become one of the leading global auto-motive players; and consequently, achieving an excellent sustainability performance was on their

management’s agenda. They were looking forward to continued engagement and the next discussion and were therefore directly upgraded to level 2.

The quality of SAIC Motor’s reporting remains at a basic level. We recommended applying the GRI guidelines and publishing the report in both English and Chinese. Furthermore, to upgrade its sustainability management and reporting, SAIC Motor could construct a materiality matrix for the issues relevant to the automotive sector.

TSMC, based in Taiwan, is the world’s lead-ing manufacturer of semiconductors. It has a 30 per cent share of the global market, three times more than its closest competitor.

We have held shares in TSMC since the Fund’s inception in 2009 and have conducted fi ve productive engagement meetings. In 2015, eight TSMC representatives took part in the discussion, refl ecting the importance placed on our regular assessment.

In early 2013, in cooperation with the Business Council for Sustainable Development (BCSD) Taiwan, we organised a conference in Taipei on “Corporate Sustainability and the UN Global Compact: Benefi ts for Investors, Investees and other Strategic Stakeholders”. This successful event, attended by over seventy participants repre-senting twenty-fi ve Taiwanese fi rms and several

universities, was followed by individual talks with companies in the Cadmos - Emerging Markets Engagement Fund. The occasion stimulated constructive engagement dialogue, in particular with TSMC. Since then, TSMC’s director of corpo-rate communications and head of investor relations, together with her deputy, has participated in all the annual discussions with the engagement team.

TSMC has a strong culture of “being not just good but great”. This is evident in those that attend our meetings. But their eagerness to learn is shared by the company as a whole. By continuously improving its adherence to the ten principles of the UN Global Compact, TSMC has proved the depth of its commitment. It cannot sign the Global Compact because the People’s Republic of China, and therefore the United Nations, does not recognise Taiwan as an auton-omous state.

SANLAM

Sanlam is the second-largest life insurer listed on the Johannesburg Stock Exchange and is active in insurance, pension-fund management, asset management, wealth management and banking and credit services. It is a market leader, with 30 per cent market share in Africa, and is bene-fiting from the robust growth in life insurance.

For the third year in a row, we met two high-level company representatives at the headquarters in Cape Town. Sanlam produced one of the most

comprehensive social responsibility reports by an emerging-market insurer in the Fund.

Next year the company will try to broaden its GRI 4 indicator disclosure. In addition, it will publish a more detailed account of why the company views some of the labour principles as less material. It will also look at disclosing more information on the environmentally friendly principle and the achievements or non-achievements regarding anti-corruption. We therefore raised Sanlam’s engagement level from 3 to 4.


TAIWAN SEMICONDUCTOR TSMC

CONCLUSION

As a responsible shareholder, we encourage most of the companies in our fund to give greater consid-eration to the tangible fi nancial risks of inaction, negligence or even unlawful behaviour. The

companies are often aware of their challenges or ready to consent to certain adjustments, partic-ularly as these are proposed by a loyal investor.


LONG-TERM RESULTS

The stable track record since 2006 enables us to select seventeen companies – from the three Cadmos compartments –and follow their evolution over a period of nine years.

A number of recent studies and surveys indicate that engagement and integration are the strategies that institutional investors interested in socially responsible investing fi nd promising.7 Today, major international institutional investors are already implementing investment strategies that integrate environmental, social and governance criteria. Indeed, some of them have opted for our Buy & Car® strategy. We are confi dent that share-holder engagement and ESG integration will take a stronger hold in Switzerland and give rise to a new generation 2.0 of responsible investors that

have never really been satisfi ed with the exclusion criteria or the best-in-class funds.

This confi dence is underpinned by the positive developments in the portfolio companies in relation to the ten principles of the Global Compact, which can be seen in the graph below. The stable track record since 2006 enables us to select seventeen companies – from the three Cadmos compart-ments –and follow their evolution over a period of nine years.8

7 . O’Sullivan and Gond, “Engagement: Unlocking the Black Box of Value Creation”, Sustainalytics & Cass Business School, 2016.8 . ABB, AXA, BP, Credit Suisse, Essilor, Engie, Danone, Heineken, H&M, HSBC, Nestlé, Novartis, Royal Dutch Shell, Société Générale, Standard Chartered, Total and UBS.

We observe continuous overall pr ogress of around 7 per cent a year in relation to all ten principles of the Global Compact. The improvement in ESG performance indicates, fi rst, that the company is generating more value for all its stakeholders and therefore for society. But it also signals that the portfolio is exposed to fewer non-fi nancial risks. In principle, when the markets become aware of this progression, a corresponding contraction in the risk premium will register directly in the share price, to the benefi t of existing shareholders.

Implementation of the “Complicity” and “Freedom of association” principles has advanced more than 100 per cent since 2006. Businesses have realised that reputation pays little heed to legal distinctions and national borders. The progress seen, particu-larly on the “Complicity” principle, is therefore related to the integration of suppliers and other members of the value chain into the companies’ social responsibility policies.

Performance on the “Human rights”, and “Corruption” principles has also made great strides of between 80 per cent and 100 per cent during the same period. The average improvement on all ten principles now stands at 77 per cent.

This trend cannot be credited solely to the infl u-ence of the Cadmos Funds but rather to all the participants everywhere that are working to create

TREND IN THE QUALITY OF THE 10 GLOBAL COMPACT PRINCIPLES

Corruption

Env. friendly technology

Environmental responsibility

Precautionary approach

Discrimination

Child labour

Forced labour

Freedom of association

Complicity

Human rights2006 2007 2008 2009 2010 2011 2012 2013 2014

48/51

TREND IN THE COMPREHENSIVENESS OF ESG INFORMATION

Achievements

Monitoring

Indicators

Measures

Objectives

Strategy

Commitment

Materiality 2006 2007 2008 2009 2010 2011 2012 2013 2014


a more sustainable world. In addition, businesses have understood that managing opacity has become more diffi cult. The increased transparency that we enjoy today, aided by the Internet, rarely leaves abuses unpunished.

The fi gures presented here refl ect in concrete terms a clear increase in awareness of the need to provide quality information on the ESG issues.

While we cannot formally prove that this uptrend translates into better performance that is what we are observing. Responsible companies are more successful at protecting their competitive edge, tend to gain more market share and fi nd it easier to access new markets. Some studies also

show that high ESG quality reduces their risk and their cost of capital. By winning the loyalty of their customers and most talented employees these companies can compensate for the capital invested and even increase their margin. They seem to be better equipped to meet their shareholders’ expectations, while also responding to society’s increasing demands.

The chapter “Active Ownership” explained that we systematically analyse the implementation of each principle throughout the management cycle according to eight criteria. Not surprisingly, the overall progress is the same as for the ten princi-ples, that is, 7 per cent a year.

As discussed several times in rec ent years, we note an increasing professionalism in the way the companies are implementing their social respon-sibility. The most striking improvements appear in the fi rst and three last steps of the eight-step management process. To begin with the fi rst step, companies are now far more adept at describing the importance and materiality of each principle in relation to their business model (+93 per cent). This was often neglected in the early days of ESG reporting, when the information tended to centre on individual case studies or new internal developments rather than the priorities from a business perspective.

The next four criteria on the chart: publication of explicit commitments from senior management, and defi nition of consistent strategies and tangible objectives, followed by the appropriate measures, were already becoming established practice in 2006 and even then obtained high scores.

The last three steps are where we observed the greatest improvements, with the relevance of the companies’ performance indicators improving most of all (+102 per cent). These performance indicators are now monitored far more effec-tively, for instance through audits and corrective measures (+92 per cent). Finally, the companies have made considerable progress in reporting their achievements and relating these to the objectives and indicators. They also report their non-achievements and provide a commentary on these (+75%).

We also observe a gratifying uptrend in the qual-ity of the ESG information (see the chart below). Particular progress is noted in the clarity, compa-rability and reliability of the data published. In those three areas, and since 2006, the improve-ments range between 46 per cent and 86 per cent.


The increased reliability is expla in ed primarily by the growing number of companies that appoint authorised independent third parties to validate or certify their ESG reports. The difference in quality between the ESG reports and the fi nancial reports is narrowing every year.

More often than not we recommend that the compa-nies reduce the amount of ESG information and incorporate it into an integrated fi nancial report. We encourage businesses that are well positioned

and take good decisions in these areas to demon-strate the links to tangible improvements in their competitive advantages and their fi nancial results, including their risk management. In addition we have a direct interest in fostering broad awareness of the fundamental qualities of the companies in which we invest. This awareness is conducive to an increase in the share price and the Cadmos Funds’ investors are the primary benefi ciaries.

ENGAGEMENT OUTLOOK

Accessibility2006 2007 2008 2009 2010 2011 2012 2013 2014

TREND IN THE QUALITY OF ESG INFORMATION

Timeliness

Reliability

Accuracy

Comparability

Clarity

The impact of our dialogue –a refl ection of how closely the companies are listening –has grown steadily since 2006, the year of our fi rst shareholder engagement. Looking beyond the expressions of thanks from senior managements, we are proud of the tangible results that we publish every year, which tend to show that the Cadmos Funds are exerting an infl uence on businesses’ social responsibility.

As promoter of the Cadmos Funds, PPT works each year to consolidate and strengthen that acqui-sition. We consider it our fi duciary responsibility to integrate the companies’ ESG situation into our models, especially when the impact on revenue, margins, capital structure or cost of capital (risks) is substantial and therefore fi nancially material.

Transparency in relation to human rights will be one of our priorities. We have mandated Fondation Guilé to intensify its analysis of this topic, to which we have always paid close attention. Both environmental and human-rights issues will have an increasing infl uence on a company’s perfor-mance. The UN Guiding Principles on Business and Human Rights will eventually apply to any business with signifi cant international operations.

Since we expect to see an increased focus on human rights, along with further improvements in trans-parency, as from 2016 we shall include the UN

Global Principles in all our human rights assess-ments. Companies such as Nestlé are starting to use the UNGP Reporting Framework –the fi rst comprehensive guide to reporting on human rights issues. The increased emphasis on this area also enlarges the scope of our discussions with the portfolio companies; this will be of particular value to the companies at an advanced engage-ment level. In addition, we plan to introduce a new qualitative rating, evaluating the quality of each assessed company’s reporting on the UN Global Principles.

We have also paid close attention to how businesses introduce and adapt to integrated reporting. Since 2009, the International Integrated Reporting Council or IIRC has been working to produce a globally accepted integrated-report-ing framework. To cite the council: “Integrated reporting is an evolution of corporate reporting, with a focus on conciseness, strategic relevance and future orientation. As well as improving the quality of information contained in the fi nal report, <IR> makes the reporting process itself more productive, resulting in tangible benefi ts”. We welcome this tool and encourage companies to adopt it in their reports, at least from a content point of view. By focusing on the links between ESG and fi nancial materiality, we are better able to understand how a company is managing its risk.



ENGAGEMENT REPORTS

The content of the following engagement reports was produced by the Guilé engagement team and the portfolio managers. It provides an account of the dialogue conducted on behalf of the Cadmos Funds with selected companies in the portfolio as at 31 March 2016. The complete set of engagement reports for all the companies in the Fund is available on request. The six companies presented here (CCR Concessoes de Rodovias, China Life Insurance, Discovery, GPA Cia Brasileira de Distribuicao, Localiza Rent a Car and OdontoPrev) are representative of our portfolio. They comprise three level 5 companies, two new entrants whose fi rst engagement report is included and, in the case of China Life Insurance, a company whose meeting makes interesting reading and justifi ed an upgrade from level 3 to level 4. A commentary on these companies and all the others that have made signifi cant changes is found in the chapter “Improvements and main stories”, pages 43 ff. A summary table listing all the companies with their engagement level is provided in the introductory chapter “Engagement performance” on page 10.

INVESTMENT CASE

A Brazilian company, operating highways in the states of Sao Paulo and Rio de Janeiro and diversifying into transport services including vehicle identification, subway infrastructure and automatic toll payment. The main growth drivers are excellent management systems and increasing car usage and infrastructure in Brazil.

ENGAGEMENT REVIEW

— 3th CSR reporting assessment— 4th discussion with the company since its entry

into the portfolio

2015: conference call meetingParticipants: the Investor Relations Manager and the Sustainability Analyst

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING

— We found a commitment for all principles. — Reporting on human rights is the most advanced

part concerning the UN Global Compact. While coverage on the protection of human rights is slightly above average, information on complicity is considerably less detailed.

— Information on the labor norms issues area is basic and the least covered section in CCR’s reporting.

— The company’s disclosure on the environment issues area is at an emerging level. Information density decreases considerably from principle 7 to principle 9, which means that the most information found was related to the precaution principle, while information on the diffusion of environmentally friendly technologies was scarce.

— Reporting on corruption is slightly below average and does not contain any information on objectives.

QUALITY OF THE COMPANY’S CSR REPORTING

— CCR’s sustainability information on the company’s website is not easily-accessible.

— Important documents can only found via a web search. Other documents are only available in Portuguese.

— A combined Global Reporting Initiative (GRI) report with references to GRI indicators and UN Global Compact principles is provided separately.

— A small sample of the indicators included in the report can be compared on a year-on-year basis.

— CCR’s sustainability report is not verified by a third party.

CORPORATE RESPONSIBILITY ISSUES

As an infrastructure company, managing thousands of kilometers of roads in addition to trains, subways and boats, CCR’s most important sustainability issues are: road security and safety, waste manage-ment, greenhouse gas emissions, energy consumption and water consumption as well as prevention of corruption and of conflicts of interest.

CCRSIGNATORY TO THE GLOBAL COMPACT SINCE 2011

Average last twelve months for companies from emerging economies

CCR

Accessibility Clarity Comparability Accuracy Reliability Timeliness

0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR CCR 2014

Outstanding

Advancing

Emerging

Basic

human right{1}

complicity{2}

freedom ofassociation

{3}

forced labor{4}

child labor{5}

discrimination{6}

env. precautionaryapproach

{7}

environmentalresponsability

{8}

env. friendly technologies

{9}

anti-corruption{10}

2014 2013 2012

RESULT OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR CCR

CSR ORGANISATION

— At the group level, CCR’s sustainability management processes and their monitoring of sustainability initiatives are concentrated within the CCR Actua division.

— CCR holding is responsible for defining strategies related to sustainability. CCR Actua harmonizes processes and tools - such as planning, drafting contracts, monitoring, discussions and policies - that contribute to the spread of knowledge and good practice and to the qualified growth of all concessionaires. CCR Actua is also responsible for organizing and structuring processes involving the management of sustainability and the consolidation of the CCR Group’s performance information.

— At the level of the CCR concessionaries, there is one person in charge of implementing measures for sustainability at each concessionary.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS

1. In CCR’s current sustainability reporting, the Guilé Engagement Team could only find qualitative objectives for two principles. We therefore recommend including at least one measurable and time-related objective per principle.

2. Coverage of internal monitoring processes remains at a very general level or is even missing for some principles. We therefore suggested including more information on monitoring systems and frequency, especially for the complicity and labor norms principles.

3. Reporting on labor norms in general lacks information on materiality, strategy and monitoring. Coverage could be improved by starting to include more detail on the materiality of these principles.

4. Accessibility of CCR’s sustainability information on the company’s website is quite difficult. All links on the sustainability website should be reviewed as well as the compatibility of the company’s online report with most common internet browsers and operating systems.

5. Important documents, such as the Climate Change or Social Responsibility Policy, are only available in Portuguese. The Guilé Engagement Team therefore recommends translating them into English and making them available for stakeholders outside Brazil.

LEVEL OF ENGAGEMENT

Two representatives from CCR’s investor relations and sustainability departments joined the call. They appreciated our structured feedback, which they also use internally to further improve the sustainability reporting. They agreed with our analysis and announced that the structure of the company’s next sustainability report is inspired by Guilé’s assessment criteria.

(6) (Recommendations publicized)

5 Shows improvement on at least one weak point raised

4 Approves the progress objectives clearly specified

3 Displays awareness and accepts the principle of an annual dialogue

2 Agrees to a detailed discussion about our assessment

1 Acknowledges receipt of our assessment

CCRSIGNATORY TO THE GLOBAL COMPACT SINCE 2011

INVESTMENT CASE

China’s largest life insurer, with 40 per cent of the market (twice the share of its closest competitor). Focused solely on life-insurance products. The company distributes its products equally through banks and a network of 760,000 agents across China, ensuring a nation-wide presence. Strong growth potential, as insurance premiums represent only 1.8 per cent of GDP, compared with 4.2 per cent in the US and 7.5 per cent in Japan.

ENGAGEMENT REVIEW


into the portfolio

2015: meeting in the offices of China Life in BeijingParticipants: the Head of CSR Management of the Group


— The depth of China Life’s CSR disclosure is still at an emerging level for most of the relevant sustainability aspects.

— The information provided on human rights related practices covered in the chapters “Employee Development, Health & Safety” and “Community Engagement by Donation and Volunteers” has substantially improved compared to the previous year and is now at an advancing level.

— References to labor norms in the chapters “Women Development” and “Trade Union Activities” are rather fractional. Aspects such as a systematic materiality analysis and strategic objectives are missing. The same is the case for environmental related commitments.

— In the area of anti-corruption, there are some measures stated in the CSR report, but the information is slight. No details could be found on achievements or related indicators. One gets the impression that the company is not taking sufficient care of this principle considering the emphasis given to “anti-corruption” in China.


— All in all the quality of China Life’s CSR reporting is at an emerging level but has improved compared to the previous year.

— Accessibility could be improved by publishing the CSR report in English and Chinese on the website simultaneously.

— The English version of the CSR report 2014 was (end of August) not available on the company website, so the report was given a low score for timeliness.

— By complying with GRI 3.1 guidelines, the report now discloses more quantitative data but not for a sufficient number of consecutive years which does not allow for comparison.

— Reliability is also quite low because the CSR report is not externally verified.


China Life is exposed to risks of corruption and illegal price-fixing agreements with national compet-itors. The fact that the Chinese population is aging and growing prosperity demand represents a huge opportunity, in combination with the provision of micro-insurance solutions to people living at the bottom of the pyramid.

CHINA LIFE NON SIGNATORY TO THE GLOBAL COMPACT


China Life


0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR CHINA LIFE 2014

Human rights

Labor norms

Environment

Corruption

basic emerging advancing outstanding

RESULT OF COMPREHENSIVENESS ASSESSMENT PER ISSUE AREA FOR CHINA LIFE 2014

CSR ORGANISATION

— “Social responsibility and welfare” is managed by the Head of CSR Management who works in the PR department and who is also responsible for the CSR Report which is published in Mandarin only. The Head of CSR Management is also in charge of the operations of China Life Foundation dedicated to philanthropic engagement and charitable giving. Presently, there are no strategic responsibilities assigned either at a board of directors or executive board level.

— Officially, there is also no dedicated group-wide organization or network in place which would support the Group CSR Manager in promoting or implementing CSR related measures within the different business lines or at a decentralized level.


1. The Guilé Engagement Team recommends building-up and maintaining an internal CSR network with representatives from the different business lines and/or important locations primarily in Mainland China which still accounts for more than 95% of the turnover. Furthermore, the formation of a CSR committee at Board level would help to “upgrade” the present rather philanthropic standing of sustainability management within the group to a more strategic, core business oriented endeavour.

2. So far, China Life has not accomplished a systematic materiality analysis, either internally or by involving its stakeholders. Generally, we suggest reporting in future about CSR related activities in line with G4 guidelines. This change (implying certain investments) might be approved by the Board due to the argument that other state-owned enterprises and important peers are already applying this disclosure framework.

3. A systematic and business related “Anti-Corruption” strategy on corporate governance should be established and stated in the CSR report with accompanying references. “Responsibility Investment” is a very valuable chapter, which should be further specified given that sustainability driven innovation for services is the key driver for future success in the insurance sector.

4. Another area where China Life is already active and which could be further enhanced due to growing demand is microfinance/-insurance. In the meeting it was confirmed that current internal discussions are heading in that direction.

LEVEL OF ENGAGEMENT

The Head of CSR Management seems to be a very committed person. She was very interested to learn from the external evaluation conducted by the Guilé Engagement Team. She was also very open to sharing with our representatives the challenges she is facing internally due to the organizational structure of China Life. She was particularly eager to gain some ideas and references from other Cadmos companies about how she can increase internal awareness and ownership. She also became inspired by an idea discussed during the meeting to explore the possibility of including sustainability aspects in the company’s investments in real estate which seems to account for a substantial part of the total assets under the management of the company.







CHINA LIFE NON SIGNATORY TO THE GLOBAL COMPACT

INVESTMENT CASE

Discovery is a South African insurance company. The business has evolved from being a pure private health insurer to a diversified insurance business with best-in -class underwriting margins, underpinned by their globally recognized science-based wellness programme called Vitality. The group is successfully duplicating the SA business model in the UK.

ENGAGEMENT REVIEW

— 1st CSR reporting assessment— 1st discussion with the company since its entry

into the portfolio

2015: meeting at the headquarters of Discovery in JohannesburgParticipants: the Deputy General Manager Finance, a Senior Sustainability Specialist and the Head of Content Marketing.


— Discovery’s reporting on UNGC principles shows a promising start.

— The report in general reflects a solid commitment to sustainability, alongside established sustainability governance structures. However, issue-specific policies are not publicly disclosed and information remains generally fragmented for some of the principles as quantitative goals are fractional, making it difficult to put (non-) achievements into context. The company shares detailed information on various topics related to Human Rights such as health-related products, community development or employee education, however no human rights policy is in place which would cover the whole value chain.

— The (non-) materiality of most of the principles (particularly of Labor principles) could be described in a more comprehensive manner and more relevant indicators could be generally used to follow progress over time.


— The quality of Discovery’s report is good. — Data is presented in a structured manner and

the language avoids unnecessary jargon. — However, information on the website is

not always aligned with the structure of the Sustainable Development Report and it is sometimes difficult to find information specifically addressing the ten UNGC principles.

— The Code of Conduct and sustainability policies are currently not publicly available.


Responsibility issues are data security, the risk of possible discrimination by not insuring some people, integrating ESG risk factors into investment management, developing products that incentivize responsible behavior and the ability to attract a diverse workforce in leadership positions.

DISCOVERYSIGNATORY TO THE GLOBAL COMPACT SINCE 2015


Discovery


0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR DISCOVERY 2014

Outstanding

Advancing

Emerging

Basic

human right{1}

complicity{2}


{3}

forced labor{4}

child labor{5}

discrimination{6}


{7}


{8}


{9}

anti-corruption{10}

2014

RESULT OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR DISCOVERY

CSR ORGANISATION

— The Discovery Board of Directors oversees the ethics management in the Group. The Board is responsible for ensuring that ethics are integrated into the strategy and culture of the Group.

— The Social and Ethics Committee, as a sub-committee of the Board, provides strategic direction to corporate ethical behavior, and further oversees the roll out of the Group’s ethical strategy. This strategy is supported and managed in a structured and formalised way by an Ethics Office that is responsible for the Group’s ethics management process. This entails the planning, coordination, implementation and control of the strategies, structures and systems required to institutionalise, monitor and report on ethics performance. The Ethics Office has started a process to integrate all levels of ethics standards in the Group.


1. The Guilé Engagement Team recommends publicly disclosing the existing sustainability policies.2. We also recommend better integrating the supply chain into the sustainability strategy.3. More information on materiality and quantitative goals will improve the understanding and monitoring

of the different principles.4. A more expanded approach on GRI indicators will allow progress to be evaluated over time. 5. Finally, the UN principles on labor rights, particularly freedom of association, forced and child labor

need to be covered in greater depth.6. In terms of quality, the Guilé Engagement Team recommends simplifying the website structure and

developing only one entry point for sustainability matters. We also recommend disclosing further details on how data has been gathered.

7. Discovery has only recently signed the UNGC and the Guilé Engagement Team recommends further switching the company’s focus to the 10 UNGC goals and referring more directly to their related issues. We are looking forward to seeing more clearly how issues are integrated into management cycles as they may sometimes appear to be a bit disconnected.

LEVEL OF ENGAGEMENT

The first engagement with Discovery was very open and constructive and the company showed interest and willingness to understand and improve their sustainability reporting.







DISCOVERYSIGNATORY TO THE GLOBAL COMPACT SINCE 2015

INVESTMENT CASE

Brazilian leading retailer in both food and electronic categories. The company’s business is based on a multi-format structure with a mix of supermarkets, hypermarkets, convenience store formats, cash and carry formats, stores of electronic products/ household appliances (Via Varejo) and e-commerce operations (Cnova). The company is controlled by the French Group Casino.

ENGAGEMENT REVIEW

— 1st CSR reporting assessment— 1st discussion with the company since its entry

into the portfolio

2015: conference call meetingParticipants: the Head of Corporate Social Responsibility


— Overall, GPA’s sustainability reporting is at an emerging level.

— The company provides commitments for almost every principle of the UN Global Compact, except for the freedom of association principle. On the other hand, information on how performance is monitored and what has been achieved remains scarce in general. Concerning the human rights issue area, the company focuses on health and safety, education and community development.

— The coverage of the labor norms principles varies greatly: while information on anti-discrimination is quite detailed, coverage on forced and child labor does not meet the same standard. Finally, almost no information could be found on the freedom of association principle. Reporting on environmental issues features an extensive list of meaningful indicators.

— GPA’s commitment to fight against corruption is strong; it also includes the company’s value chain. Nevertheless, it remains unclear how performance and achievements are measured in this area.


— The quality of GPA’s sustainability reporting is at a good level.

— The report and relevant policies are easily accessible via the investor relations website. The information is presented in a clear and structured manner and is externally verified.

— However, these documents cannot be accessed directly from the Group website.

— In addition, comparability is low. Year-on-year comparison of the indicators in order to assess the company’s performance is only possible in a few cases.


As a retail company, GPA has material issues concerning all three sustainability issues. Regarding the environment, the most relevant issues are materials sourcing (product certification), food waste manage-ment as well as energy and water consumption. In terms of societal aspects, product information and product safety and labor conditions are of the utmost importance.

GPASIGNATORY TO THE GLOBAL COMPACT SINCE 2003

Average last twelve months for companies from industrialized economies

GPA


0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR GPA 2014

Outstanding

Advancing

Emerging

Basic

human right{1}

complicity{2}


{3}

forced labor{4}

child labor{5}

discrimination{6}


{7}


{8}


{9}

anti-corruption{10}

2014

RESULT OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR GPA

CSR ORGANISATION

— GPA’s Sustainable Development Committee is one of five committees formed by the board of directors. The Sustainable Development Committee has three members. Its main objective is increasing the value of the company by recommending measures concerning the following aspects: sustainable development and environmental aspects relating to the company’s activities; sustainable practices; campaigns relating to environmental and social matters; social and sustainable development reports; strategic investments in light of sustainability.

— The Corporate Sustainability department is part of the Office of the Vice-President for HR and Sustainability. Its responsibilities include: supporting the definition of the sustainability strategy, goals and objectives; monitoring environmental policies and laws; analyzing trends and new issues.


1. GPA’s sustainability report contains a little information on monitoring approaches and achievements regarding the ten principles of the UN Global Compact. The team therefore recommends including more detail on monitoring processes and their scope.

2. Comprehensiveness concerning the three labor norm principles freedom of association, child labor and forced labor is very limited. We have suggested re-evaluating the materiality of these principles. In case of non-materiality, an explanatory statement would be helpful.

3. GPA has not yet adopted a sustainability reporting framework. Reporting along such a framework and including a reference table (e.g. a GRI content index) in the report would improve its clarity and help stakeholders to find relevant information more quickly.

4. In terms of the quantitative indicators presented in the report, adding the values of the previous – or even of the two previous – years would greatly enhance comparability and allow stakeholders to better evaluate GPA’s performance.

LEVEL OF ENGAGEMENT

The representative from GPA participating in the call showed great interest in Guilé’s assessment and asked several questions concerning GET’s assessment methodology and the engagement, but also regarding how specific issues could be improved. She appreciated Guilé’s analysis and confirmed that it was very useful to her. She was happy to hear that the briefing will take place on an annual basis.







GPASIGNATORY TO THE GLOBAL COMPACT SINCE 2003V

INVESTMENT CASE

LocalizaRentACar is active in car rental, corporate fleet management, and the resale of used vehicles. The company benefits from a network and a strong local brand with solid growth prospects (improving instracture and increasing mobility). Localiza has a 40 per cent share of car rentals in airports and is by far the market leader in Brazil.

ENGAGEMENT REVIEW


into the portfolio

2015: conference call meetingParticipants: the Investor Relations Manager and the Marketing Manager


— Overall, Localiza’s sustainability reporting is at an average level.

— Comprehensiveness improved compared to last year in almost all issue areas, except in the anti-corruption area.

— Despite this slight progress the company’s reporting remains rather fractional. While most information could be found on strategy, coverage on measures as well as on achievements and indicators is considerably less detailed.

— Regarding the issue areas, human rights is the most extensively covered. The company’s policies focus on issues such as professional training as well as occupational health and safety.

— In terms of labor norms, Localiza’s commitment to fight discrimination is strong. Almost no information could be found on the other three labor norms.

— With regards to the environment issue area, the company reports in a quite detailed manner on its strategy and supporting measures.

— Regarding the fight against corruption, clear commitment and guidance is provided for employees in different situations.


— The quality of Localiza’s reporting improved compared to last year, but still remains at a basic level.

— The accessibility of the sustainability information is acceptable.

— Nevertheless, important policy documents, to which the company refers on its website, are not published.

— The company’s environmental management plan is only available in Portuguese.

— So far, the content is not structured along a GRI index or an UNGC reference table.

— The few available quantitative indicators are comparable on a year-on-year basis.


As a car rental company, human rights issues such as health and safety, education and working condi-tions (including the supply chain) are crucial. The ILO-labor norms regarding employee and employer relations and diversity are also relevant. Concerning the environment, the company focuses on water use for washing cars and energy use in its buildings.

LOCALIZA RENT A CAR NON SIGNATORY TO THE GLOBAL COMPACT


Localiza Rent A Car


0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR LOCALIZA RENT A CAR 2014

Human rights

Labor norms

Environment

Corruption

basic emerging advancing outstanding

RESULT OF COMPREHENSIVENESS ASSESSMENT PER ISSUE AREA FOR LOCALIZA RENT A CAR 2014

CSR ORGANISATION

— Although Localiza perceives itself as a responsible company and although the issue of CSR is identified as an important and relevant issue for the future of the company, no CSR-department exists. CSR issues are managed by a team of three representatives from the investor relations, the communications and the marketing department. The team meets on a weekly basis.


1. Localiza does not provide much information regarding the materiality of the UNGC issue areas. The Guilé Engagement Team therefore suggested performing a materiality analysis in order to define the most relevant sustainability issues.

2. Reporting on the environment issue area could be further improved by reporting a set of relevant quantitative indicators. At the moment, only one quantitative indicator can be found.

3. It is recommended translating all relevant documents into English to enhance the accessibility of Localiza’s sustainability reporting. The company’s environmental management plan, for example, is only available in Portuguese.

4. In terms of clarity, an UNGC or a GRI reference table would greatly help stakeholders to find specific information more quickly. Localiza has not adopted any sustainability reporting guidelines so far.

5. Regarding accuracy, it is suggested including a section which explains how information reported has been gathered. So far, there is no information available concerning the company’s internal reporting procedures.

LEVEL OF ENGAGEMENT

The company representatives confirmed that our assessment was very helpful to them. During the briefing the representatives asked a series of specific questions aimed at further improving Localiza’s sustainability reporting. It can be said that this company integrates our feedback systematically: comprehensiveness improved for almost every aspect which was raised in the last briefing.








CSR ORGANISATION

— Although Localiza perceives itself as a responsible company and although the issue of CSR is identified as an important and relevant issue for the future of the company, no CSR-department exists. CSR issues are managed by a team of three representatives from the investor relations, the communications and the marketing department. The team meets on a weekly basis.


1. Localiza does not provide much information regarding the materiality of the UNGC issue areas. The Guilé Engagement Team therefore suggested performing a materiality analysis in order to define the most relevant sustainability issues.

2. Reporting on the environment issue area could be further improved by reporting a set of relevant quantitative indicators. At the moment, only one quantitative indicator can be found.

3. It is recommended translating all relevant documents into English to enhance the accessibility of Localiza’s sustainability reporting. The company’s environmental management plan, for example, is only available in Portuguese.

4. In terms of clarity, an UNGC or a GRI reference table would greatly help stakeholders to find specific information more quickly. Localiza has not adopted any sustainability reporting guidelines so far.

5. Regarding accuracy, it is suggested including a section which explains how information reported has been gathered. So far, there is no information available concerning the company’s internal reporting procedures.

LEVEL OF ENGAGEMENT

The company representatives confirmed that our assessment was very helpful to them. During the briefing the representatives asked a series of specific questions aimed at further improving Localiza’s sustainability reporting. It can be said that this company integrates our feedback systematically: comprehensiveness improved for almost every aspect which was raised in the last briefing.








INVESTMENT CASE

Odontoprev is Brazil’s leading dental insurer, with more than 50 per cent of the market. A unique and innovative business model has enabled the company to gain market share while maintaining robust profitability.

ENGAGEMENT REVIEW


into the portfolio

2015: conference call meetingParticipants: the CEO, the IR Director and the IR Manager


— OdontoPrev reports on progress addressing all four issue areas of the UN Global Compact with a better structured COP than in the previous year. However, the information and data provided remain at an emerging level.

— The issue area of human rights has improved and is described in the most comprehensive manner in the COP and on the corporate website.

— Regarding labor norms, there is a clear focus on the area of diversity, but reporting on the remaining issues is still in its infancy.

— Due to the Carbon Disclosure Project, more information was found on the precautionary approach to environmental challenges.

— Due to GET’s revised assessment methodology, the coverage of the corruption principle scored slightly lower than in the previous year. There is no explanation of the materiality of this principle, and the formulation of quantitative objectives is missing.


— The quality of OdontoPrev´s reporting has slightly improved compared to last year.

— The COP was published on time and the accuracy of environmental information is better due to the publication of the Carbon Disclosure Project on the company website.

— Nevertheless, there is still room for improvement when it comes to accessibility and clarity of the documents. Comparability is difficult, as there is no information given to track progress over time.

— Information on sustainability is still not promi-nently featured on the corporate website.


As a health care provider (dental care services) OdontoPrev faces sustainability challenges such as hygiene, recycling of amalgam and other materials, energy- and resource efficiency, anti-corruption and regulation. The safety of dental care services and access for low income customers are other important issues.

ODONTOPREVSIGNATORY TO THE GLOBAL COMPACT SINCE 2008


Odontoprev


0 20 40 60 80 100

RESULT OF QUALITY ASSESSMENT FOR ODONTOPREV 2014

Outstanding

Advancing

Emerging

Basic

human right{1}

complicity{2}


{3}

forced labor{4}

child labor{5}

discrimination{6}


{7}


{8}


{9}

anti-corruption{10}

2014 2013 2012

RESULT OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR ODONTOPREV

CSR ORGANISATION

— OdontoPrev has a sustainability team that reports directly to the CEO and that has access to all operational units of the company. The IR director reports directly to the CEO, who also joined this year’s call. The CEO is directly responsible in the company for climate change. In the future, OdontoPrev aims to implement a process to identify risks and opportunities regarding possible climate change impacts, and how these could influence the company´s activities and stakeholders.

— The Ethics Conduct Committee is responsible for proposing actions for dissemination of and compliance with the Code of Conduct.


1. The COP was redesigned and has a better structure than in the previous year. However, it is still at a rather superficial level. For further improvement, we suggest differentiating between the specific UNGC principles (instead of only issue areas) and reporting more details on operative aspects. The company could consider publishing a CSR report instead of a “formal” COP. Moreover, for further improvement a materiality analysis of each sustainability principle could be considered.

2. To further standardize the reporting and make it more transparent, we suggest thinking about using a formalized standard such as GRI. This would also help with the reporting of indicators.

3. The Guilé Engagement Team highly recommends setting quantitative goals in addition to the rather unspecific qualitative targets.

4. Furthermore, we suggest reporting data over a 3-5 year period to improve comparability and show progress over time.

5. Some policy documents on the website still seem to be wrongly placed (e.g. social policy under environmental actions) and should be rearranged.

LEVEL OF ENGAGEMENT

The CEO participated in the call, which is an indicator of the growing relevance of CSR issues at OdontoPrev. It also shows that our feedback is of high importance to the company. Even though the reporting is still at an emerging level, the company seems to be moving into the right direction and to be eager to further improve.The Investor Relations Director was open and answered questions in a comprehensive way. He asked specific details regarding trends in CSR reporting and related to the assessment methodology.







ODONTOPREVSIGNATORY TO THE GLOBAL COMPACT SINCE 2008

In 1996 David de Pury, Guillaume Pictet, Henri Turrettini and Christian Berner joined forces to create their company. de Pury Pictet Turrettini & Cie S.A. (PPT) provides wealth management services. The fi rm has developed advanced skills in asset management for both private and institutional clients and currently manages around CHF 3 billion.de Pury Pictet Turrettini & Cie has always demonstrated a great capacity for innovation, notably as a pioneer of responsible investment. It is the owner of the Buy and Care® strategy, manager of the Cadmos - European Engagement Fund com-partment and promoter of the Cadmos Fund, and ensures the funds’ consistency, transparency and distribution. PPT is a signatory to the United Nations-supported Principles for Responsible Investment (PRI).

NO TICE

This document is published for information purposes only. The content of this document does not constitute an offer for sale or a solicitation of an offer to purchase nor does it constitute an incentive to invest or to engage in arbitrage transactions. It may not be construed as a contract under any circumstances. The information contained in this document has not been analyzed with regard to your personal profi le. If you have questions regarding any investment or if you have doubts as to whether an investment decision is appropriate, please contact your particular client representative or, if applicable, seek fi nancial, legal, or tax advice from your customary advisors. de Pury Pictet Turrettini S.A. makes every effort to verify the information provided but cannot give any guarantee as to its accuracy. Past performance that might be indicated in the information transmitted by de Pury Pictet Turrettini S.A. in no way determines future returns. Any decision to invest or divest that may be made by the reader of the information appearing herein is made at the sole initiative of the investor who is familiar with the mechanisms governing the fi nancial markets.

This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their fi nancial intermediaries acting in relation to their investment in the fund mentioned in this document. For Swiss investors, the paying agent is Banque Pictet & Cie S.A. and the representative agent is Fund Partner Solutions (Suisse) S.A., Route des Acacias 60, Ch-1211 Genève 73 , Switzerland. The relevant legal documentation may be obtained free of charge from the representative agent, from de Pury Pictet Turrettini & Cie S.A. or online at www.ppt.ch/en/reporting-and-documents. Cadmos Fund Management, 15A, avenue J.F. Kennedy, L-1855 Luxembourg.

This document is the intellectual property of de Pury Pictet Turrettini S.A. Any reproduction or transmission of this document in whole or in part to a third party without the prior written authorization of de Pury Pictet Turrettini S.A. is strictly prohibited.

© 2016, de Pury Pictet Turrettini & Cie S.A. All rights reserved.

CADMOS EMERGING MARKETSENGAGEMENT FUNDBuy & Care® Responsible Investment Fund

Integrated Performance Report2015-2016

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De Pury Pictet Turrettini & Cie S.A.

12, rue de la CorraterieP.O- Box 5335CH-1211 Geneva 11Tel. +41 22 317 00 30Fax +41 22 317 00 33www.ppt.ch

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CADMOS EMERGING MARKETS ENGAGEMENT FUND€¦ · The Cadmos – Emerging Markets Engagement Fund, promoted by PPT, is a compartment of the Luxembourg-based Cadmos umbrella fund. Comgest