Responsible investing

Sandra CarlisleNewton Investment Management 28 October 2014

Prepared for Professional Clients only. Any views and opinions expressed hereafter are those of the investment manager, unless otherwise noted.

Responsible investment is about risk and return

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Responsible investment matters

1ESG1 issues can have a material impact on company value 2Ensures that

companies protect the interests of minority shareholders 3Protects against

reputational loss

“Environmental, social and corporate governance issues … affect the performance of investment portfolios.”

Anne Simpson, CALPERS2

1Environmental, social and governance 2Source: CalPERS Global Principles of Accountable Corporate Governance CalPERS_–_Towards Sustainable Investment 2012

What investing responsibly means

1977: UK proxy voting

1994: RI policies and principles document

2000: Global proxy voting

2007: Newton signs PRI

2010: Newton signs UK Stewardship Code

2012: ESG quality reviews

2014: Newton joins NAPF Stewardship Advisory Group

2002: Summary ESG reports

2005: UK ESG assessments

2008: Global ESG assessments

2008: ESG thematic reports

Quarterly RI report covers all ESG activities

Quarterly proxy voting report

Regular ESG research on timely and topical issues

ESG research

Jan 2014: published research on UK binding pay vote

Engagement and active stewardship

2013: 104 in-depth company engagements

Transparent client reporting

73 detailed ESG company quality assessments

Active proxy voting

2013: voted at 1,073 AGMs

✓

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Core to our approach since 1977

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…and has become increasingly important through market impact and regulation

RI team identifies and researches ESG issues

!SOCIAL

• Human rights • Employment • Supply chain • Health & safety • Education • Business ethics

!GOVERNANCE

• Internal controls • Shareholder rights • Remuneration • Regulation • Capital structure • Board structure

!ENVIRONMENTAL

• Climate change • Natural resources • Energy use • Industrial waste • Product life-cycle

• Biodiversity

✓

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ESG issues are present in all Newton themes

• Air/water pollution, water shortage, environmental stress

• Regulatory response and challenges • Social and environmental implications

of climate change • Sustainable agriculture, forestry,

energy • GHG emissions • Food/energy trade-off • Environmental inputs as corporate

costs • Increasing pressure to price

environmental degradation/inputs accurately

Features and scope• Geographic distribution of

environmental resources • Efficient resource use, pollution

control, monitoring • Political intervention, unintended

consequences, uneconomic returns • Climate change effects may be more

unpredictable than envisaged • Agricultural efficiency, supply-chain

management • Environmental issues and economic

growth

Opportunities / risks

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Engagement on themes and issues

Issues driving engagement• Exporting grain and agricultural commodities from countries with food

shortage risks • Supply chain diversification to hedge event risk • Opportunities in agribusiness innovation, through improvement to crop

resilience and yield • Water stress • Use of technology to improve sustainability

Safety in high-risk sectors Newton engaged with companies which suffer high accident and fatality rates

FDI* in agribusiness Newton engaged with companies exposed to the

trend of investment in African agribusiness sectors

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Issues driving engagement• Corporate culture, including machismo and inherent risk-taking • Linking safety performance to remuneration • Whistleblowing and addressing ‘near-misses’ • Managing risk inherited through mergers and acquisitions • !!

* Foreign Direct Investment

2013

Engagement with company management

Gain more information

about strategy & competitive

position

Monitor company

performance to protect the

value of client assets

Share views on best practice

Address material ESG

concerns

Encourage positive

changes in company behaviour

870 one-on-one company meetings

104 company engagements prompted by ESG concerns

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Engagement frequency is growing

0

10

20

30

40

Q1 2011 Q1 2012 Q1 2013 Q1 2014

34262020

20 20

26

34

ENG

AG

EMEN

TS

Q1 2011 Q1 2012 Q1 2014Q1 2013

✓ ✓ ✓ ✓✓GOVERNANCE SOCIAL ENVIRONMENTAL

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Engagement for change

Swiss healthcare company

+• Material E&S data collection is basic • Good practices on health and safety • Responsible marketing • Animal testing; lack of disclosure

Company commitment to improve ESG disclosure

Governance Environmental and social✓• CEO loyalty • Activist distraction

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The information is being provided for illustrative purposes only and is intended to provide an example of Newton’s ESG activities. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that portfolio holdings and positioning are subject to change without notice.

2013

Active global voting

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✓ 1,073 AGMs voted in 2013

Newton votes actively and

abstains where conflict of interest

exists

Newton votes 100% of client

holdings

38% votes against management in

2013

52% votes against management in

Q2 2014

Instruct votes against

Custodian Voting service provider

Newton’s corporate actions team

Responsible investment

team

Outsource voting to

independence third party

Conflict of interest

YES

NO

NO Instruct votes in favour

NO

Contentious issue

Instruct votes in favour

Instruct votes against

YES

YES

NO

Meaningful holding

Still contentious

Discuss internally with investment

teams

YES

Internal governance oversight of RI team

Newton board

Responsible investment strategy group

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Robust internal governance structure

Responsible investment team

Investment oversight committee

Research and client reporting

Annual Quarterly Occasional

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Documents available on request

Industry collaboration

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At Newton, responsible investment is active investment

Think responsible investment. Think Newton

Risk-adjusted returnLong-term focus

Information advantage Improved decision-making

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Appendix

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Global researchSector teams – fostering collaborative teamwork

Encouraging analysts to consider their research in a wider context¹ Combined Research/ Investment Management roles *Accounting and valuation oversight Source: Newton, September 2014

Rosie Bichard

TraceyGrace

Fati Naraghi

Roger Wilkinson Research Leader

Jonathan McMullan

Charles French Team Leader

Paul Schenk

NickPope

StephenRowntree

Emily Fletcher

Global research 19 Industry analysts

6 Credit analysts 3 ESG analysts

1 Strategy

Cyclical sectorsTechnology

& telecoms

Healthcare

Responsible investment

Strategy

Consumer

Financials

CreditMaria

Toneva

Duncan Bulgin Team Leader

RobertCanepa-Anson

Christopher Smith

TimLucas

Demetri Goradetsky

Michal Plotkowiak

JeremyStuber*

Howard Cunningham¹

ParmeshwarChadha¹

ScottFreedman¹

Martin Chambers

SebastienPoulin

Khuram Sharih

LouisePugh

Peter Hensman

Ian Burger

AshimPaun

Sandra Carlisle

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UK Stewardship Code

• The UK Stewardship Code sets out best practice principles for investors when exercising their ownership responsibilities

• Aims to enhance engagement between investors and companies and improve long-term shareholder value

The seven principles of the UK Stewardship Code:

Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.

Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.

Principle 3: Institutional investors should monitor their investee companies.

Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.

Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.

Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.

Principle 7: Institutional investors should report periodically on their stewardship and voting activities.

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Source: https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Stewardship-Code.aspx

Questions for trustees to ask their investment managers

What dedicated resource exists to assess ESG issues?

How is the resource structured and what expertise do the staff have?

Where does this resource sit within the investment structure?

What is the process for integrating ESG into investment decisions?

Does the investment manager exercise its voting rights globally?

What codes of practise has the investment manager signed?

How does the investment manager comply with the UK Stewardship Code?

What ESG reporting is available for clients?

What are the current ESG issues being considered and researched?

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Important information

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Newton Investment Management Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA Tel: 020 7163 9000 Registered in England No. 1371973. www.newton.co.uk

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The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. !This is a financial promotion for Professional Clients and/or distributors only. This is not intended as investment advice. !BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries. This document should not be published or distributed without authorisation from BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA). To help continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us.

Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.

Newton Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Newton Investment Management Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1371973. !This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. !BNYMIM EMEA is the global (ex US) distributor of the capabilities of its investment managers including those of Newton Investment Management Limited (Newton). !This document is issued in the Netherlands by BNYMIM EMEA, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. !BNYMIM EMEA, Newton and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. Issued as at 24-10-2014. CP13863-31-10-2014(1W