Page 1

CADMOS EMERGING MARKETS ENGAGEMENT FUND Buy & Care ® Responsible Investment Fund Integrated Performance Report 2015-2016


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 firm 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 CareŽ strategy, manager of the Cadmos - European Engagement Fund compartment 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).


WELCOME For the sixth consecutive year, de Pury Pictet Turrettini & Cie S.A. (PPT) is publishing a transparent, 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.

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 governance (ESG) communications. In addition, our engagement team constantly stimulates the companies to find practical ways of achieving further progress and increasing their efficiency.

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

Our systematic shareholder engagement with the underlying companies represents a unique feature of this strategy. Our objective is far-reaching. Overall, we aim at demonstrating that profitability and responsibility can be reconciled. To that end, our portfolio managers’ investment decisions are based on sound fundamental analysis, a disciplined management process and a keen understanding of the companies’ 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 first 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 investment strategy, financial performance and proxy votes, together with the results of the engagement meetings. The last chapter, “Engagement reports”, contains the engagement reports on selected companies, 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 investors. This report is available on the website at http://www.ppt.ch/en/cadmos

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.

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


TABLE OF CONTENTS SUMMARY OF RESULTS IN 2015-2016

. . . .

5

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

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

Distribution of votes

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

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

10

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

Engagement performance

. . . . . . . . . . . . . . . . . . . . . . .

Cadmos Institutional Event 2015 . . . . . . . . . . . . . . . 13 THE CADMOS FUNDS’ BUY & CARE ® STRATEGY . . . . . . . . . . . . . . . . . . . 15 Founding Principles

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

SHAREHOLDER ENGAGEMENT

. . . . . . . . .

30

37

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

. . .

40

Company analysis & Portfolio management. . . 18

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

19

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

Active ownership

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL MANAGEMENT REPORT . . . 23 Performance of the emerging markets . . . . . . . . . . 24 Portfolio movements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Engagement outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ENGAGEMENT REPORTS

. . . . . . . . . . . . . . . . . .

51


SUMMARY OF RESULTS IN 2015-2016


6/51

SUMMARY OF RESULTS IN 2015-2016

F INANCIAL

PERFORMANCE 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 profits could make significant strides in the coming years.

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 compartment 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.

The portfolio’s turnover was higher than usual in 2015. As the next table shows, we sold seven positions and introduced eight others, including three investments in Chinese stocks. In fact, the first 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 promising 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-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. Most of the markets had to contend with disappointing earnings growth. Corporate profits were hit by the decline in household purchasing power due to weakening currencies and falling real wages, which hampered growth significantly, and the negative operating leverage following years of reckless expansion. Asian earnings outperformed those of the other regions. P ERFORMANCE

For example, the videogames 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.

SINCE INCEPTION

280.00 260.00 240.00 220.00 200.00 180.00 160.00 140.00 120.00

Cadmos Emerging Markets Engagement fund (B)

MSCI EM - Net Return $

100.00 80.00 mar. 09

sep. 09

mar. 10

sep. 10

mar. 11

sep. 11

mar. 12

sep. 12

mar. 13

sep. 13

mar. 14

sep. 14

mar. 15

sep. 15


7/51

SUMMARY OF RESULTS IN 2015-2016

Portfolio as at 31.12.2015 AIA GROUPE (New) BAIDU

Sector Insurance

Country Hong Kong

Technology

China

Insurance

Brazil

Industrial Goods & Services

India

BHARTI AIRTEL (New)

Telecommunications

India

BHARTI INFRATEL

Telecommunications

India

Food & Beverage

Brazil

BB SEGURIDADE PARTICIPACOES (New) BHARAT HEAVY ELECTRICALS

BRF BRASIL FOOD CCR CONCESSOES DE RODOVIAS CHINA LIFE INSURANCE COMPANY CHINA MOBILE CIELO CK HUTCHISON HOLDINGS

Industrial Goods & Services

Brazil

Insurance

China

Telecommunications

China

Financial Services Industrial Goods & Services

Brazil Hong Kong

COCA-COLA FEMSA (New)

Food & Beverage

Mexico

COCA-COLA HBC

Food & Beverage

United Kingdom

COMGEST GROWTH LATIN AMER.

Fund

Other

COMGEST GROWTH-GEM PROM.

Fund

Other

COMGEST GROWTH-GROWTH INDIA

Fund

Other

DISCOVERY (New)

Insurance

EMPRESAS COPEC

Oil & Gas

FEMSA GAIL INDIA (Out) GPA CIA BRASILEIRA DE DISTRIBUICAO HEINEKEN INFOSYS

Food & Beverage

South Africa Chile Mexico

Oil & Gas

India

Retail

Brazil

Food & Beverage

Nertherlands

Technology

India

Food & Beverage

China

JBS (Out)

Food & Beverage

Brazil

KWEICHOW MOUTAI COMPANY

Food & Beverage

China

INNER MONGOLIA YILI (New)

LOCALIZA RENT A CAR

Retail

Brazil

MAGNIT

Retail

Russia

MAIL.RU GROUP

Technology

Russia

MEDIA TEK (Out)

Industrial Goods & Services

Taiwan

MOBILE TELESYSTEMS OJSC (Out)

Telecommunications

Russia

MTN GROUP

Telecommunications

South Africa

Media

South Africa

NASPERS NATURA COSMETICOS

Personal & Household Goods

Brazil

NETEASE

Technology

China

ODONTOPREV

Health Care

Brazil

Insurance

China

Utilities

India

PING AN INSURANCE POWER GRID INDIA SABMILLER (Out) SAIC MOTOR

Food & Beverage Automobiles & parts

South Africa China

SAMSUNG LIFE INSURANCE

Insurance

Korea

SANLAM

Insurance

South Africa

TAIWAN SEMICONDUCTOR TSMC TATA MOTORS (Out) TENARIS (Out) WEG WEIFU HIGH-TEC (New) YANDEX

Technology Industrial Goods & Services Basic Resources

Taiwan India Argentina

Industrial Goods & Services

Brazil

Automobile & parts

China

Technology

Russia


8/51

SUMMARY OF RESULTS IN 2015-2016

V OTING

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. 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 governance practices.

D URING

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 resolutions, 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.

THE PERIOD UNDER REVIEW WE EXPRESSED AN

OPINION ON

503

ITEMS ON THE AGENDAS OF ANNUAL

GENERAL MEETINGS

(AGM S ) D ISTRIBUTION

OF THIRTY - THREE COMPANIES .

OF OPPOSING VOTES

39 250 15 200

150 177 23

160

100

1 50 44

44 0

1. Board of directors

2. Remuneration For

In 2015, CK Hutchison was the company incurring the highest proportion of votes against its management. We voted against seventeen of the nineteen resolutions concerning the board of directors, mainly because less than a third of its board members are independent. In such cases, Comgest applies stricter rules than usual and will generally also refuse to support directors serving on too many boards. Boards in the emerging-market countries are struggling 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.

3. Capital structure

4. Shareholder’s rights

Against

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 fiftyone 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.


9/51

SUMMARY OF RESULTS IN 2015-2016

2015

Total

01.01 31.12 Voted

Description

Total

country

AIA GROUPE (New)

Hong Kong

0

1

0 Entry after AGM

0

0

BAIDU

China

1

1

0

0

0

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%

No voting rights

resolutions against

%

Name

Against

BB SEGURIDADE

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

1

1

1

Voted

31

2

6.45%

CHINA LIFE INSURANCE COMPANY 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

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

Brazil

0

1

0 Entry after AGM

0

0

11.11%

GPA CIA BRASILEIRA DE DISTRIBUICAO 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

KWEICHOW MOUTAI COMPANY

China

1

1

0

No voting rights

0

0

16.67%

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

WEIFU HIGH-TEC (New)

China

0

1

0

No voting rights

0

0

YANDEX

Russia

Voted

1

1

1

42

42

33

11

4

503

78 15.51%

0.00% 36.36%


10/51

SUMMARY OF RESULTS IN 2015-2016

E NGAGEMENT

PERFORMANCE

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 companies. It is especially high considering that eight new companies entered the portfolio in 2015 and four others were assessed for the first 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.

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 particularly 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 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.

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

Our dialogues generally take place in a highly constructive atmosphere, with astonishing transparency 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. Three 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 continuity accounts for the quality of our discussion of the progress achieved over time. In its 2012 sustainability 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 noted that these two companies use our feedback year after year to improve the comprehensiveness of their sustainability 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 specified”, since in the main, they have yet to follow through on 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).

For company meetings we insist on including representatives of the financial side of the business (investor relations, CFO office 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. D ISTRIBUTION

2.61

OF ENGAGEMENT LEVEL

2.69

2.62

: 2010-2016

2.97

2.69

1.43

2010-2011

2011-2012

Level 6

Level 3

Level 5

Level 2

Level 4

Level 1

2012-2013

Average

2013-2014

2014-2015

2015-2016


11/51

SUMMARY OF RESULTS IN 2015-2016

Portfolio as at 31.12.2015

Engagement type

Level Change Summary

AIA GROUPE (New)* Conference Call 2 BAIDU No meeting 1 BB SEGURIDADE PARTICIPACOES (New) No meeting (late entry) New BHARAT HEAVY ELECTRICALS No meeting 1 BHARTI AIRTEL (New) No meeting 1 BHARTI INFRATEL No meeting 1 BRF BRASIL FOOD No meeting 1 CCR CONCESSOES Conference Call 5 DE REDOVIAS** CHINA LIFE Meeting 4 INSURANCE COMPANY** CHINA MOBILE Meeting 4

New -2 New = New -1 = +5

CIELO Conference Call 4 CK HUTCHISON HOLDINGS* Conference Call 2 COCA-COLA FEMSA (New) No meeting (late entry) New COCA-COLA HBC Conference Call 5 COMGEST GROWTH LATIN AMER. Fund Fund COMGEST GROWTH-GEM PROM. Fund Fund COMGEST GROWTH INDIA Fund Fund DISCOVERY (New)** Meeting 2 EMPRESAS COPEC Conference Call 5 FEMSA Conference Call 4 GAIL INDIA (Out) Exit Exit GPA CIA BRASILEIRA DE DISTRIBUICAO (New)** Conference Call 2 HEINEKEN* Conference Call 5 INFOSYS No meeting 1 INNER MONGOLIA YILI (New) No meeting (late entry) New JBS (Out) Exit Exit KWEICHOW MOUTAI COMPANY No meeting 1 LOCALIZA RENT A CAR** Conference Call 5 MAGNIT Conference Call 3 MAIL.RU GROUP* Conference Call 2 MEDIA TEK (Out) Exit Exit MOBILE TELESYSTEMS OJSC (Out) Exit Exit MTN GROUP Meeting 4

= +1 New = Fund Fund Fund New = = Exit

+1 -1

New +1 = New Exit New +2 = New Exit Exit -1

NASPERS NATURA COSMETICOS NETEASE ODONTOPREV**

No meeting Conference Call No meeting Conference Call

1 5 1 5

-3 = = =

PING AN INSURANCE POWER GRID INDIA SABMILLER (Out) SAIC MOTOR* SAMSUNG LIFE INSURANCE SANLAM* TAIWAN SEMICONDUCTOR TSMC* TATA MOTORS (Out) TENARIS (Out) WEG WEIFU HIGH-TEC (New) YANDEX

No meeting No meeting Exit Conference Call No meeting Meeting Conference Call Exit Exit Conference Call No meeting No meeting

1 1 Exit 2 1 4 4 Exit Exit 5 1 1

= = Exit New = +1 = Exit Exit = New -1

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

First discussion with the company. No interest for engagement meeting this year.

Has been sold and re-bought - Previous discussions were held. Not interested in an engagement meeting this year. Precise suggestions implemented Next report inspired by our recommendations Very committed head of CSR willing to implement our recommendations. High level of interest but recommendations have yet to be followed through. First discussion with the company.

First discussion with the company.

First discussion with the company. Ongoing improvements.

Precise suggestions implemented. Ongoing dialogue without significant progress. First discussion with the company.

High level of interest but recommendations have yet to be followed through. Not possible to schedule a brefing this year.

CEO participation in the call shows the company’s interest in making progress. Not interested in an engagement meeting this year. First discussion with the company. Willingness to implement our recommendations. Strong interaction with the company but without significant progress.

Not interested in an engagement meeting this year.

** 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.


12/51

SUMMARY OF RESULTS IN 2015-2016

TESTIMONIALS

F R O M S O M E O F T H E C O M PA N I E S W I T H W H O M W E A R E E N G AG E D I N D I A L O G U E

“…

YOUR CONTINUOUS FEEDBACK IS KEY

FOR OUR PROGRESS ON

CSR

ACTIVITIES …”

J OSE R OBERTO P ACHECO , E XECUTIVE D IRECTOR & IRO, O DONTO P REV .

“… T HANKS A LOT FOR THE CALL . I T WAS VERY IMPORTANT TO HAVE

YOUR INPUTS ABOUT OUR PRACTICES …” G LEICE D ONINI

DE

S OUZA , G ERENTE DE S USTENTABILIDADE , V ICE -P RESIDÊNCIA DE D ESENVOLVIMENTO O RGANIZACIONAL , C IELO .

We greatly appreciate these testimonials, which bear witness to the results that can be obtained by maintaining an influential dialogue conducted professionally and courteously.


13/51

SUMMARY OF RESULTS IN 2015-2016

C ADMOS I NSTITUTIONAL E VENT 2015 TRANSFORMING SOCIAL AND ENVIRONMENTAL CHALLENGES INTO A COMPETITIVE ADVANTAGE – THE EXAMPLE OF GEBERIT Albert Baehny, president of Geberit, travelled from Jona to Geneva to attend the Cadmos Swiss Engagement Fund’s fi rst-anniversary celebrations. 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 shareholder 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 governmental 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 businesses 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 longterm 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 defined 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.


SUMMARY OF RESULTS IN 2015-2016

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

15/51


16/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

F OUNDING P RINCIPLES 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. 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 financial and economic. 1. We do not invest in a stock but in a company. Every effort will be made to visit the companies 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-indulgent 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 decisions. Through this approach we strengthen our understanding and fundamental analysis of the companies. Our managers’ assessments of the risks and sustainability of the companies’ business 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 reflected 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 benefit 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 strategy 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 engagement 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 responsible 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 shareholders that adopt an overly inflexible stance, removed from the economic realities; or the shareholders themselves decide to exclude certain companies from the dialogue.


17/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

S TRATEGIC

POSITIONING OF THE

C ADMOS F UNDS Cadmos Funds

Social performance

Integration

Engagement Best in class Exclusion Financial performance

In addition, the Cadmos Funds stand out from the best-in-class strategy, where investment decisions 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 difficulty 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 profitable 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 significant role in the responsible investment universe. The Buy & Care strategy is a virtual, cyclical process built around listening to investors’ concerns. Applied to the Cadmos Funds, it pushes back the frontiers not only of responsible investment but of active management. The following diagram provides a simplified view of the three-step Buy & Care process as it applies to the Cadmos – Emerging Markets Engagement Fund.

T HE C ADMOS F UNDS ’ B UY & C ARE S TRATEGY

B

®

®

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

re

Buy

Ca

&

&

Ca re

uy

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

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

Buy & are ® C The Buy & Care strategy is not a one-size-fits-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 longevity of the companies’ competitive advantages and

therefore their ESG characteristics; use of valuation 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.


18/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

COMPANY ANALYSIS & PORTFOLIO MANAGEMENT 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 profit margins and return on equity, a sound balance sheet and low debt. As can be seen from the investment process shown below, it then analyses the quality of the companies as franchises (barriers to entry, strong competitive advantages etc.). Lastly, a five-year forecasting model based on systematic

use of discounted profits 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 analyses. To do so it adopted a risk-based approach. Evaluating the risks associated with the ESG factors serves to strengthen the fundamental-analysis 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 incorporated qualitatively, by the financial analyst, into the overall assessment of each company’s risks.

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 portfolio 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 significant proportion of the management fees is handed on to the Fondation Guilé to finance the activities of the engagement team, which initiates and conducts the shareholder engagement.

I NVESTMENT P ROCESS

1. IDENTIFICATION OF POTENTIAL INVESTMENTS Total Universe: regional stocks with a market cap > $1bn, including off-benchmark stocks 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

Investment Candidates = around 300 stocks 2. DETAILED ANALYSIS OF CANDIDATES In-depth analysis of the company, the competition and the markets Meetings 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

ONGOING ASSESSMENT


19/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

A CTIVE

OWNERSHIP

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 efficient, 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 manager’s investment decision and therefore be part and parcel of his responsibilities.

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. PROXY VOTING The real long-term financial impact of the decisions made at an AGM is well documented. Few professionals would deny that the skills, independence and availability of a board of directors are critical 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 first and foremost a financial responsibility. Comgest has elected the independent proxy Institutional Shareholder Services (ISS) to exercise its vote. ISS is responsible for studying the resolutions and providing voting recommendations 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 analysis of voting in the 2015 AGM season, presented in the chapter “Exercise of voting rights”, is broken down according to that classification.

VOTING GUIDELINES STURCTURE OF THE BOARD OF DIRECTORS 1. Election of individual board members 2. Functioning and independence of the various committees 3. Separation of CEO function and president of the board of directors 4. Granting of the discharge TRANSPARENCY AND COHERENCE OF THE REMUNERATION STRUCTURE 5. 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 CAPITAL 7. Approval of accounts and allocation of profits/dividends 8. Appropriate capital structure 9. Appointment of the auditors SHAREHOLDERS’ RIGHTS 10. Amendments to article of association, equal treatment or shareolders and anti-takeovermeasures


20/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

THE GLOBAL COMPACT ENGAGEMENT PROCESS The continuous dialogue that we seek as a shareholder 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’ performance 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 financial side of the business (investor relations, CFO office 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 configured 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 integrated 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 UN GLOBAL COMPACT’S 10 PRINCIPLES HUMAN RIGHTS 1. Businesses should support and respect the protection of internationally proclaimed human rights; and 2. make sure that they are not complicit in human rights abuses. LABOR STANDARDS 3. 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; and 6. eliminated discrimination in respect of employment and occupation. ENVIRONMENT 7. Businesses should support a precautionary approach to environmental challenges; 8. undertake initiatives to promote greater environmental responsability; and 9. encourage the development and diffusion of environmental friendly technologies. ANTI-CORRUPTION 10. Businesses should work against corruption in all forms, including extortion and bribery.

T HE C ADMOS F UNDS ’

SHAREHOLDER ENGAGEMENT IS

BASED ON THE FOUR THEMES AND TEN PRINCIPLES OF THE

UN G LOBAL C OMPACT .


21/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

The Global Compact is a unique self-regulatory initiative signed by more than eight thousand companies who strive to align their current operations with ten universally accepted principles in the areas of human rights, international labour standards, environmental standards and the fight 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 comprehensiveness 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, first, the improvements and shortcomings noted, and second, the financially 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 companies’ 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. E NGAGEMENT P ROCESS Company data and publications

Shareholder dialogue

COP analysis

Assessment results

The assessment opens the way to a constructive 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 financially material paths to progress.

The COP-Analysis conducted by the engagement team distinguishes between the comprehensiveness and the quality of the companies’ extra-fi nancial reporting. The comprehensiveness analysis is carried out for each of the ten Global Compact principles according to the following eight criteria.


22/51

THE CADMOS FUNDS’ BUY & CARE® STRATEGY

COMPREHENSIVENESS ANALYSIS: EIGHT CRITERIA TO ANALYSE THE IMPLEMENTATION OF EACH OF THE TEN PRINCIPLES

1. How does the company describe the importance of the principle the impact of this principle on its activities and performance throughout its value chain 2. To what extent does the company express commitment to the principle explicit and practical undertaking to treat the principle as a responsibility and priority 3. How does the company integrate the principle into its strategy its practical integration into the company’s strategy and processes 4. Are the objectives clearly defi ned how does the company transform its engagement into tangible objectives 5. Are the necessary measures properly described are the actions ensuring proper integration into the company’s day-to day- activities 6. What performance-measurement indicators has the company identified relevant, reliable, ascertainable, comparable 7. Is the control system in place Surveillance and audit procedures as well as corrective actions 8. What is the impact of the measures taken results, performance, successes or failures

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

sufficiently credible and accessible and is likely to be taken into account by the financial markets.

QUALITY ANALYSIS: SIX CRITERIA TO ASSESS THE QUALITY OF THE REPORTING 1. 2. 3. 4. 5. 6.

Accessibility (information easy to fi nd ) Clarity (information precise and easy to understand) Comparability (year-on-year comparison with competitors) Accuracy (relevance of the collected information) Reliability (confidence in the accuracy of information) Rapidity (consistent frequency)

This formal distinction between the comprehensiveness 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 benefit to the Cadmos Funds’ investors.

FINANCIAL MATERIALITY FOCUS Since 2013, we have done more every year to integrate the financial 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 financially 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 adjustments 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 engagement team, determine the topics that will form the common thread of our shareholder dialogue. We address both the risks and the potential business 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 engagement priorities. This approach ensures that we remain leaders in terms of methods of integrating the ESG factors.


FINANCIAL MANAGEMENT REPORT


24/51

FINANCIAL MANAGEMENT REPORT 2015

P ERFORMANCE

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 ineffectiveness 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 profits were hit by the decline in household purchasing power due to depreciating currencies and falling real wages, which hampered growth significantly, and by negative operating leverage following years of reckless expansion. Asia’s profits 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-market currencies all dealt a blow to confidence and to companies’ profits. 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 continued to outpace demand. While these adverse conditions partly explain Latin America’s lacklustre performance, they actually benefited 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. PORTFOLIO POSITIONING AND COMPANY UPDATES The Fund delivered a solid performance in terms of relative value. It benefited 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 picking 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 flow generation.


25/51

FINANCIAL MANAGEMENT REPORT 2015

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. P ERFORMANCE

SINCE INCEPTION

280.00 260.00 240.00 220.00 200.00 180.00 160.00 140.00 120.00

Cadmos Emerging Markets Engagement fund (B)

100.00

MSCI EM - Net Return $

80.00 mar. 09

sep. 09

mar. 10

sep. 10

mar. 11

sep. 11

mar. 12

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 unexpected 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 established enabled us to discuss the subject thoroughly and transparently, and the answers to our questions satisfied us on the whole. In a sluggish economic climate, Brazil’s rising interest rates penalised CCR (motorways) and Localiza (car rental), as their business models are capital intensive. Although these companies weighed on the Fund’s earnings growth in 2015, we have no real concerns about their business models and growth prospects. Bharat Heavy Electricals (BHEL), a manufacturer of power plant equipment, is hampered by the considerable time delay between order placement and revenue recognition. In addition this is a cyclical activity, since in a country such as India, infrastructure investment depends on fiscal health, the regulatory environment and foreign capital inflows. These factors became favourable again only when Prime Minister Narendra

sep. 12

mar. 13

sep. 13

mar. 14

sep. 14

mar. 15

sep. 15

Modi was elected in 2014 and made “electricity for all” his priority. BHEL is the main beneficiary of this welcome initiative. But despite the orders already placed, the turnover and profits 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 profits could make significant 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 products 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 benefits. The stock is currently trading at 17 times projected 2016 earnings and does not seem overvalued. Kweichow Moutai (spirits) is gradually regaining prestige in the new “corruption-free” China. Despite its high pricing power and profitability, Moutai is one of the emerging market’s least expensive consumer-goods companies. It is trading at 13 times projected 2016 earnings, which seems to us to reflect neither its quality nor its growth prospects.


26/51

FINANCIAL MANAGEMENT REPORT 2015

P ORTFOLIO

MOVEMENTS

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 portfolio scarcely more than eighteen months, and slightly less than two years in the case of responsible investment funds.3 As the next table shows, we made more changes than usual to the portfolio in 2015. In fact, the first 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 promising long-term investment. We also acquired smaller positions in Inner Mongolia Yili, a producer and distributor of dairy products, and in Weifu HighTechnology, 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-upgrade 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 largest telecom operator in India; the Mexican group Coca-Cola Femsa, the world’s largest independent bottler of Coca-Cola products; Discovery, a financial-services group based in South Africa and active in long- and short-term insurance, asset management, savings accounts, investment and employee benefits; and finally, GPA - Companhia Brasileira de Distribuição, the second-largest retail company in Latin America by revenue and the second-largest 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.

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

O UTLOOK Investors are disenchanted with the emerging markets, as evidenced by the record outflows of some 72 billion US dollars in 2015. The developing economies 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 find in the developed countries. After five 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

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

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 strategy that resulted in excessive loan-to-deposit ratios and insufficient 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.


27/51

FINANCIAL MANAGEMENT REPORT 2015

As regards the emerging markets’ performance, it is difficult 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 C OMPOSITION

the Fund is solidly positioned. Its projected earnings growth for 2016 is 11 per cent. Several large positions are significantly undervalued in our opinion, and the new acquisitions should gradually strengthen the Fund’s profit growth and performance.

OF THE PORTFOLIO AS AT

Portfolio as at 31.12.2015 AIA GROUPE (New) BAIDU

31 D ECEMBER 2015

Sector Insurance

Country Hong Kong

Technology

China

Insurance

Brazil

Industrial Goods & Services

India

BHARTI AIRTEL (New)

Telecommunications

India

BHARTI INFRATEL

Telecommunications

India

BRF BRASIL FOOD

Food & Beverage

Brazil

BB SEGURIDADE PARTICIPACOES (New) BHARAT HEAVY ELECTRICALS

CCR CONCESSOES DE RODOVIAS CHINA LIFE INSURANCE COMPANY CHINA MOBILE CIELO CK HUTCHISON HOLDINGS

Industrial Goods & Services

Brazil

Insurance

China

Telecommunications

China

Financial Services Industrial Goods & Services

Brazil Hong Kong

COCA-COLA FEMSA (New)

Food & Beverage

Mexico

COCA-COLA HBC

Food & Beverage

United Kingdom

COMGEST GROWTH LATIN AMER.

Fund

COMGEST GROWTH-GEM PROM.

Fund

Other

COMGEST GROWTH-GROWTH INDIA

Fund

Other

Other

DISCOVERY (New)

Insurance

South Africa

EMPRESAS COPEC

Oil & Gas

Chile

FEMSA GAIL INDIA (Out) GPA CIA BRASILEIRA DE DISTRIBUICAO HEINEKEN INFOSYS

Food & Beverage

Mexico

Oil & Gas

India

Retail

Brazil

Food & Beverage Technology

Nertherlands India

INNER MONGOLIA YILI (New)

Food & Beverage

China

JBS (Out)

Food & Beverage

Brazil

KWEICHOW MOUTAI COMPANY

Food & Beverage

China

LOCALIZA RENT A CAR

Retail

Brazil

MAGNIT

Retail

Russia

MAIL.RU GROUP

Technology

Russia

MEDIA TEK (Out)

Industrial Goods & Services

Taiwan

MOBILE TELESYSTEMS OJSC (Out)

Telecommunications

Russia

MTN GROUP

Telecommunications

South Africa

Media

South Africa

NASPERS NATURA COSMETICOS

Personal & Household Goods

Brazil

NETEASE

Technology

China

ODONTOPREV

Health Care

Brazil

Insurance

China

PING AN INSURANCE POWER GRID INDIA SABMILLER (Out) SAIC MOTOR

Utilities Food & Beverage Automobiles & parts

India South Africa China

SAMSUNG LIFE INSURANCE

Insurance

Korea

SANLAM

Insurance

South Africa

TAIWAN SEMICONDUCTOR TSMC TATA MOTORS (Out) TENARIS (Out) WEG WEIFU HIGH-TEC (New) YANDEX

Technology Industrial Goods & Services Basic Resources

Taiwan India Argentina

Industrial Goods & Services

Brazil

Automobile & parts

China

Technology

Russia


28/51

FINANCIAL MANAGEMENT REPORT 2015


EXERCISE OF VOTING RIGHTS


30/51

EXERCISE OF VOTING RIGHTS IN 2015

D ISTRIBUTION

OF VOTES

At the end of December 2015, the portfolio of the Cadmos – Emerging Markets Engagement Fund comprised thirty-nine companies. We systematically 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 five 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, representing an average of slightly more than fi fteen items per company. 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. Nevertheless, corruption scandals at businesses from Brazil to China are increasing the pressure on companies everywhere to improve their governance practices.

D ISTRIBUTION

OF VOTES

Shareholder’s rights 9% Board of directors 43%

Capital structure 35%

Remuneration 13%

Contrary to the developed countries, the emergingmarket countries have seen no significant rise in the number of resolutions submitted to the vote in recent years. Individual companies 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 companies 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 inexorable underlying trend, are encouraging businesses to adopt more acceptable standards of governance. Even though international investors tend to underestimate the importance of these issues, they nevertheless find progress on them reassuring. This increased confidence gradually begins to pay off for investors in the Cadmos Funds by enhancing the valuations of the underlying companies.


31/51

EXERCISE OF VOTING RIGHTS IN 2015

M AIN

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 corresponds 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). D ISTRIBUTION

OF OPPOSING VOTES

39 250 15 200

150 177 23

160

100

1 50 44

44 0

1. Board of directors

2. Remuneration For

Themes

3. Capital structure

4. Shareholder’s rights

Against

Nb. Vote

Against

%

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%

1- Board of directors

In the emerging markets, 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, reflecting some improvements 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 fifty-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.


32/51

EXERCISE OF VOTING RIGHTS IN 2015

A NALYSIS

OF VOTES BY TOPIC

BOARD OF DIRECTORS The first topic addressed in our voting guidelines – the structure of the board of directors – is of fundamental importance to a company’s development 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 V OTES

CONCERNING :

the objectives are reached. A board of directors must be a cohesive and competent team, available 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. B OARD

OF DIRECTORS

Name

Country

Vote

# Dissent

% Dissent

BHARAT 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 significant 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-independent nominees of these companies. At CK Hutchison we voted against seventeen of the nineteen board-related resolutions, mainly because less than a third of its board members are independent. In such cases, Comgest applies stricter rules than usual and will generally also refuse to support directors serving on too many boards.


33/51

EXERCISE OF VOTING RIGHTS IN 2015

V OTES

CONCERNING :

B OARD

OF DIRECTORS

Name

Description

BHARAT HEAVY

3) Re-elect A. Sobti as Director

Our objections Lack of independence

ELECTRICALS

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 independence

BHARTI AIRTEL

3) Elect T.y. Choo as Director

Lack of independence

CCR CONCESSOES

4) Fix Number and Elect Directors

Lack of independence

DE RODOVIAS

1) Elect Directors

Lack of independence

CHINA LIFE INSURANCE 11) Elect Miao Jianmin as Director

Attendance less than 75%

CHINA MOBILE

Too many mandates

4.2) Elect A. Sobti as Director

CK HUTCHISON

2a) Elect Moses Cheng Mo Chi as Director

Board Member + 80 years old

HOLDINGS

2b) Elect Li Ka-shing as Director

Lack of independence

2c) Elect Fok Kin Ning, Canning as Director

Lack of independence

JBS

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 mandates

3) Elect Directors

Lack of independence

LOCALIZA RENT A CAR 4.4) Elect Flavio Brandao Resende as Director

Lack of independence

MTN GROUP

1.4) Re-elect Jan Strydom as Director

Lack of independence

5.4) Re-elect Ben van der Ross as Director

Too many mandates

NASPERS

6.2) Re-elect Ben van der Ross as Member NETEASE PING AN INSURANCE

POWER GRID INDIA YANDEX

of the Audit Committee

Too many mandates

1f) Re-elect Michael Leung as Director

Too many mandates

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 independence

3) Re-elect R.P. Singh as Director

Lack of independence

4) Re-elect R.P. Sasmal as Director

Lack of independence

4)Re-elect John Boynton as Non-Executive Director

Lack of independence


34/51

EXERCISE OF VOTING RIGHTS IN 2015

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

CONCERNING :

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. R EMUNERATION

Name

Country

Vote

# Dissent

% Dissent

BHARTI 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%

Except for Cielo, all the Brazilian companies on the above list had posed similar remuneration problems in 2014. In most cases, we are unable to obtain the information needed to assess the appropriateness and structure of the total package. The lack of transparency, and the focus on near-term performance in what documentation does exist are the V OTES Name BHARTI INFRATEL

BRF SA

CCR CONCESSOES DE REDOVIAS CIELO COCA-COLA HBC

CONCERNING :

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 regulator. In other cases, issues are lumped together or poorly defined. R EMUNERATION

Description 1) Approve Implementation of ESOP Scheme 2) Approve Employee Stock Option Scheme 3) Approve Stock Option Plan Grants to Employees 4) Approve Acquisition by ESOP Trust of Shares of the Company 1) Approve Remuneration of Company’s Management 2) Amend the Company’s Stock Option Plan and Restricted Share Plan 6) Approve Remuneration of Company’s Management

4) Approve Remuneration of Company’s Management 5.1) Amend Articles of Association 5.2) Adopt the amendment Stock Option Plan 6) Approve the Remuneration Reports JBS 5) Approve Remuneration of Company’s Management NASPERS 7) Approve Remuneration Policy 10) Approve the Trust Deed of the Restricted Stock Plan 11) Approve Amendments to the MIH Holdings Share Trust Deed NATURA COSMETICOS 1) Approve Stock Option Plan 2) Approve Restricted Stock Plan 3) Amend Remuneration of Company’s Management 5) Approve Stock Option Plan 6) Amend Restricted Stock Pla 7) Amend Global Remuneration for Fiscal Year 2015 TATA MOTORS 4) Approve Minimum Remuneration of R. Pisharody 5) Approve Minimum Remuneration of S. Borwankar

Our objections Excessive remuneration Excessive remuneration Excessive remuneration Excessive remuneration Lack of transparency Remuneration short term oriented Lack of transparency Lack of transparency Remuneration short term oriented Remuneration short term oriented Lack of transparency Lack of transparency Excessive remuneration Remuneration short term oriented Remuneration short term oriented Excessive remuneration Excessive remuneration Lack of transparency Remuneration short term oriented Remuneration short term oriented Excessive remuneration No control mechanism No control mechanism


35/51

EXERCISE OF VOTING RIGHTS IN 2015

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

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 justified 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.

There are fewer flagrant 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.

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 disapprove. Our results show that we punish excesses and grant more flexibility to companies that pay a “sustainable dividend”. The latter is a dividend that rewards the long-term investors that we defend through the visibility that it provides as regards the valuation of the underlying security. 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

CAPITAL STRUCTURE Our third topic relates to all the AGM resolutions 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 financial 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 V OTES Name

CONCERNING :

proposals. Nevertheless, the financial 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 excellent 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. C APITAL

Country

STRUCTURE

Vote

# Dissent

% Dissent

CHINA 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.


36/51

EXERCISE OF VOTING RIGHTS IN 2015

V OTES

CONCERNING :

C APITAL

STRUCTURE

Name

Description

Our objections

CHINA 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) CK HUTCHISON

Authorize Reissuance of Repurchased Shares

5.1) Approve Issuance of Equity-

HOLDINGS

Excessive dilution Excessive dilution

Linked Securities without Preemptive Rights 5.3) Authorize Reissuance of Repurchased Shares

DISCOVERY

2)

Authorize Reissuance of Repurchased Shares

Excessive dilution

NASPERS

8)

Place Authorized But Unissued Shares

Excessive dilution and multiple

under Control of Directors

dasses of shares

Authorized Board to Issue Shares for Cash

Multiple dasses of shares

9)

under Control of Directors 2)

Approve Financial Assistance in Terms

Item must be separated

of section 44 of the Act

PING AN INSURANCE

4)

Authorize Reissuance of Repurchased Shares

Excessive dilution

5)

Authorize Reissuance of Repurchased Shares

Lack of transparency

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

SHAREHOLDERS’ RIGHTS In the fourth topic, on shareholders’ rights, we have grouped all the items related to equal treatment 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, V OTE Name EMPRESAS COPEC

Vote 1

CONCENING :

# Dissent% Dissent 1

100%

which would authorise the vote on a new resolution 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.

S HAREHOLDERS ’

RIGHTS

Description

Our objections

6 Other Business

Other subjects unknown - refused.


SHAREHOLDER ENGAGEMENT


38/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

I MPACT

OF THE

UN G LOBAL C OMPACT

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 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 first time, having entered late in 2014. Credit

C ONTACT

ENGAGEMENT

for this success must go to the dedication of the engagement team and the overall stability of the portfolio. Of the twenty-two meetings, five 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

WITH THE COMPANIES IN THE COMPARTMENT

80% 70% 60% 50% 40% 30% 20% 10% 0%

Dialogue

No dialogue during timeframe 2012-2013

2013-2014

2014-2015

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 companies in the portfolio, allowing us to maintain an engagement rate slightly above 60 per cent. 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 difficult to address the ten principles with such companies, some of whom may be unaware of the very existence of this worldwide initiative.

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 first assessment and meeting.

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.

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.


39/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

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

over-simplified exclusion criteria, ratings and other ESG classifications 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 influential and constantly constructive. Although the dialogue must maintain a certain rate of engagement to be influential, that ratio does not suffice to judge its effect. With that in mind, we use a scale of six levels, designed to provide a transparent measure of the extra-financial impact of the UN Global Compact engagement with the companies. The following table shows the evolution over the last two reporting cycles.

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 stakeholders. But they are also increasingly critical of E NGAGEMENT

LEVEL OF COMPANIES

(#)

2014-2015

2015-2106

Level

Description

0

0

(6)

8

8

5

Shows improvements on at least one weak point raised

6

7

4

Approves the progress objectives clearly specified

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

(Recommendations publicized)

The Cadmos Funds’ “soft power” engagement is clearly conducive to a dialogue that is both influential and constantly constructive. The effectiveness targets set for the Cadmos Funds are ambitious. Our first goal is to create a continuing 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 D ISTRIBUTION

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 quantified by tracking the average level of engagement over time. Today the average stands at 2.69, where it has remained stable over the last five years.

OF ENGAGEMENT LEVEL

: 2010-2016 Level 6 Level 5 Level 4 Level 3 Level 2 Level 1

2.61

2.69

2.62

2.97

Average 2.69

1.43

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016


40/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

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 continuity was reflected in a reliable discussion about the progress achieved over time. In its 2012 sustainability 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 sustainability 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.

I MPACT

Despite excellent meetings, we downgraded China Mobile and MTN to level 4, “Approves the progress objectives clearly specified”, 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 particularly 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.

OF THE FINANCIALLY MATERIAL ENGAGEMENT

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 (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, finance 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 principle 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 financially material threat.

T HE PRELIMINARY IDENTIFICATION OF THE F INANCIAL M ATERIALITY F OCUS 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 application 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 principles, 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 6 . Institut de Hautes Études Internationales et du Développement – IHEID.

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 conference in January 2014 at the Graduate Institute in Geneva, addressed by Professor John Ruggie and attended by more than five hundred people. 6 The following table presents a selection of the FMFs of the Fund’s underlying companies as discussed with them.


SHAREHOLDER ENGAGEMENT 2015 – 2016

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 financial services and internet-based financial services

BAIDU

Green IT issues (energy efficiency, waste management, etc.) Data safety and privacy

BB SEGURIDADE

Integrity and reliability of the insurance products and related marketing

PARTICIPACOES (New)

Innovation of inclusive financial services and internet-based financial services

BHARAT HEAVY ELECTRICALS

Public contracts - risks of bribery and corruption Energy and ressource efficiency

BHARTI AIRTEL (New)

Data security and privacy Energy efficiency (data centers)

BHARTI INFRATEL

Energy and ressource efficiency 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 efficiency

DE REDOVIAS

Public contracts - risks of bribery and corruption

CHINA LIFE INSURANCE

Integrity and reliability of the insurance products and related marketing

COMPANY

Innovation of inclusive financial services and internet-based financial services

CHINA MOBILE

Human rights issues (temporary migrant workers) Data security and privacy

CIELO

Allocation of financial services - process for analysing client’s ESG

CK HUTCHISON HOLDINGS

Anti-corruption strategy

COCA-COLA FEMSA (New)

Product health & safety Opportunities for helathier products

COCA-COLA HBC

Product health & safety

COMGEST GROWTH LATIN AMER.

Fund

COMGEST GROWTH-GEM PROM.

Fund

COMGEST GROWTH INDIA

Fund

DISCOVERY (New)

Integrity and reliability of the insurance products and related marketing

Opportunities for helathier products

Innovation of inclusive financial services and internet-based financial services EMPRESAS COPEC

Environmental footprint Human rights issues in the value chain

FEMSA

Product health & safety Opportunities for helathier products

GAIL INDIA (Out)

Exit

GPA CIA BRASILEIRA DE

Labour standards

DISTRIBUICAO

Fair marketing and advertising

HEINEKEN

Product health & safety Opportunities for helathier products

INFOSYS

Data security and privacy Diversity and skills management

INNER MONGOLIA YILI (New)

The provision of healthy, nutrient-rich and safe food Responsible sourcing

JBS (Out)

Exit

KWEICHOW MOUTAI

Ethical marketing practices

COMPANY

Product health & safety

LOCALIZA RENT A CAR

Environmental footprint Customer welfare

MAGNIT

Labour standards Fair marketing and advertising

41/51


42/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

Portfolio as at 31.12.2015 (continued)

Financial Materiality Focus (continued)

MAIL.RU GROUP

Data security and privacy Environmentally friendly technologies

MEDIA TEK (Out)

Exit

MOBILE TELESYSTEMS OJSC (Out)

Exit

MTN GROUP

Data security and privacy Responsibel marketing

NASPERS

Data security and privacy Responsible marketing

NATURA COSMETICOS

Product safety Environmental technology (better efficiency and substitution)

NETEASE

Green IT issues (energy efficiency, waste management, etc.) Data security and privacy

ODONTOPREV

Safety and dental care services Integrity and reliability of the insurance products and related marketing

PING AN INSURANCE

Integrity and reliability of the insurance products and related marketing Innovation of inclusive financial services and internet-based financial services

POWER GRID INDIA

Energy and environmental challenges (climate change) Anti-corruption issues

SABMILLER (Out)

Exit

SAIC MOTOR

Life-cycle impact and emissions New technologies

SAMSUNG LIFE INSURANCE

Integrity and reliability of the insurance products and related marketing Innovation of inclusive financial services and internet-based financial services

SANLAM

Integrity and reliability of the insurance products and related marketing Innovation of inclusive financial services and internet-based financial services

TAIWAN SEMICONDUCTOR TSMC

Energy efficiency Supply chain management

TATA MOTORS (Out)

Exit

TENARIS (Out)

Exit

WEG

Labour standards (remuneration, helath & safety, freedom of association) Resource efficiency and ecological impact of its products

WEIFU HIGH-TEC (New)

Life-cycle impact and emissions New technologies

YANDEX

Green IT issues (energy efficiency, waste management, etc.) Data security and privacy


43/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

I MPROVEMENTS

AND MAIN STORIES

Here we 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 insurers based in the emerging markets, we believe that the most relevant, financially material ESG criteria are the integrity and reliability of the insurance products and marketing, and innovation in the area of inclusive and Internet-based financial services.

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 insurance companies around the world for many years.

While not a signatory of the Global Compact, AIA Group publishes fairly advanced information 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.

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 confined to diversity and non-discrimination.

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

CCR CONCESSOES DE RODOVIAS 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 diversified 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 difficult 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 recommendation had clearly been implemented.

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 meeting its management for the fifth time. Once again we had a very constructive discussion, which took place in Beijing with the head of social responsibility, 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 officially, there is no dedicated group-wide organisation or network to support her in promoting or implementing sustainability measures within the different business lines or away from the centre.


44/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

She was therefore particularly eager to obtain ideas and references from other Cadmos companies, with a view to increasing internal awareness and ownership of social responsibility. We recommended 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 first 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 information 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 Discovery is a dynamic South African insurance company. Originally a pure private health insurer, it has developed into a diversified insurance business with best-in -class underwriting margins, underpinned by a globally recognised science-based wellness programme called Vitality. Discovery also entered the Fund in 2015. Three highlevel representatives joined us at the headquarters for this first meeting: the deputy general manager (finance), 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 financial 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 reflects a solid commitment to sustainability and the established sustainability governance structures. However, issue-specific 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 difficult 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 GPA is among the eight new companies entering 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, hypermarkets, 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 principle of the UN Global Compact except freedom of association. But overall, it provides little information on how performance is monitored and what has been achieved.


45/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

When we pointed out that the reporting contained almost no quantitative goals, the head of sustainability 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 influence in the action under way on several sustainability issues. We expect to see significant 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 achievements that are increasing the company’s quality. Also in 2014, we had advised Localiza to include more specific data in its reporting on the environmental principles. It now mentions goals and indicators, but we hope to see more in the coming years on this financially 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.

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

As a healthcare provider (dental insurer) OdontoPrev faces sustainability challenges including 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 also important issues.

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, financial 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.

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 define 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

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 growing awareness of the social responsibility issues. OdontoPrev seems to be moving in the right direction 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 significant cost advantage and the highest profitability in the industry. The main challenges for SAIC Motor are: managing 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 first 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

SHAREHOLDER ENGAGEMENT 2015 – 2016

and reporting. SAIC Motor is aware of the importance of improving its sustainability disclosure. It is proud of its leading position in China’s car market, especially in financial 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 automotive 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.

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 benefiting 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 TSMC, based in Taiwan, is the world’s leading 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 five productive engagement meetings. In 2015, eight TSMC representatives took part in the discussion, reflecting 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: Benefits for Investors, Investees and other Strategic Stakeholders”. This successful event, attended by over seventy participants representing twenty-five Taiwanese firms 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 corporate 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 autonomous state.

CONCLUSION As a responsible shareholder, we encourage most of the companies in our fund to give greater consideration to the tangible financial risks of inaction, negligence or even unlawful behaviour. The

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


47/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

L ONG - TERM

RESULTS

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 confident that shareholder engagement and ESG integration will take a stronger hold in Switzerland and give rise to a new generation 2.0 of responsible investors that T REND

IN THE QUALITY OF THE

have never really been satisfied with the exclusion criteria or the best-in-class funds. This confidence 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 compartments –and follow their evolution over a period of nine years. 8 10 G LOBAL C OMPACT

PRINCIPLES

Corruption Env. friendly technology Environmental responsibility Precautionary approach Discrimination Child labour Forced labour Freedom of association Complicity 2006

2007

2008

2009

2010

2011

We observe continuous overall progress of around 7 per cent a year in relation to all ten principles of the Global Compact. The improvement in ESG performance indicates, first, 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-financial 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 benefit 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, particularly 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.

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.

2012

2013

2014

Human rights

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 influence of the Cadmos Funds but rather to all the participants everywhere that are working to create

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.


48/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

a more sustainable world. In addition, businesses have understood that managing opacity has become more difficult. The increased transparency that we enjoy today, aided by the Internet, rarely leaves abuses unpunished. The figures presented here reflect 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 find it easier to access new markets. Some studies also T REND

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 principles, that is, 7 per cent a year.

IN THE COMPREHENSIVENESS OF

ESG

INFORMATION

Achievements Monitoring Indicators Measures Objectives Strategy Commitment 2006

2007

2008

2009

2010

2011

As discussed several times in recent years, we note an increasing professionalism in the way the companies are implementing their social responsibility. The most striking improvements appear in the first and three last steps of the eight-step management process. To begin with the first 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 definition of consistent strategies and tangible objectives, followed by the appropriate measures, were already becoming established practice in 2006 and even then obtained high scores.

2012

2013

2014

Materiality

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 effectively, 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 quality of the ESG information (see the chart below). Particular progress is noted in the clarity, comparability and reliability of the data published. In those three areas, and since 2006, the improvements range between 46 per cent and 86 per cent.


49/51

SHAREHOLDER ENGAGEMENT 2015 – 2016

The increased reliability is expla ined 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 financial reports is narrowing every year. More often than not we recommend that the companies reduce the amount of ESG information and incorporate it into an integrated financial report. We encourage businesses that are well positioned T REND

IN THE QUALITY OF

and take good decisions in these areas to demonstrate the links to tangible improvements in their competitive advantages and their financial 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 beneficiaries.

ESG

INFORMATION

Timeliness Reliability Accuracy Comparability Clarity

2006

2007

2008

E NGAGEMENT

2009

2010

2011

2012

2013

2014

Accessibility

OUTLOOK

The impact of our dialogue –a reflection of how closely the companies are listening –has grown steadily since 2006, the year of our first 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 influence on businesses’ social responsibility. As promoter of the Cadmos Funds, PPT works each year to consolidate and strengthen that acquisition. We consider it our fiduciary 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 financially 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 influence on a company’s performance. The UN Guiding Principles on Business and Human Rights will eventually apply to any business with significant international operations. Since we expect to see an increased focus on human rights, along with further improvements in transparency, as from 2016 we shall include the UN

Global Principles in all our human rights assessments. 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 engagement 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-reporting 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 benefits”. 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.


50/51

SHAREHOLDER ENGAGEMENT 2015 â&#x20AC;&#x201C; 2016


SUMMARY OF RESULTS IN 2015-2016

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 justified an upgrade from level 3 to level 4. A commentary on these companies and all the others that have made significant 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.

51/51


CCR

SIGNATORY TO THE

GLOBAL COMPACT SINCE 2011

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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.

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 management, greenhouse gas emissions, energy consumption and water consumption as well as prevention of corruption and of conflicts of interest.

ENGAGEMENT REVIEW — 3th CSR reporting assessment — 4th discussion with the company since its entry into the portfolio

2015: conference call meeting Participants: 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR

CCR

human right {1} anti-corruption {10}

complicity {2}

Outstanding Advancing

env. friendly technologies {9}

freedom of association {3}

Emerging Basic

forced labor {4}

environmental responsability {8}

env. precautionary approach {7}

child labor {5}

discrimination {6} 2014

2013

2012

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT

OF QUALITY ASSESSMENT FOR

CCR 2014

Average last twelve months for companies from emerging economies

CCR 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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.


CCR SIGNATORY TO THE

GLOBAL COMPACT SINCE 2011

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 timerelated 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


CHINA LIFE

NON SIGNATORY TO THE GLOBAL COMPACT

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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 nationwide 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.

China Life is exposed to risks of corruption and illegal price-fixing agreements with national competitors. 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.

ENGAGEMENT REVIEW — 6th CSR reporting assessment — 5th discussion with the company since its entry into the portfolio

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

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING — 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT

PER ISSUE AREA FOR

C HINA L IFE 2014

Human rights

Labor norms

Environment

Corruption

basic

emerging

advancing

outstanding

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT

OF QUALITY ASSESSMENT FOR

C HINA L IFE 2014

Average last twelve months for companies from emerging economies

China Life 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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

NON SIGNATORY TO THE GLOBAL COMPACT

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.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS 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. (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


DISCOVERY

SIGNATORY TO THE

GLOBAL COMPACT SINCE 2015

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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.

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.

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 Johannesburg Participants: the Deputy General Manager Finance, a Senior Sustainability Specialist and the Head of Content Marketing.

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING — 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR

D ISCOVERY

human right {1} anti-corruption {10}

Outstanding

complicity {2}

Advancing env. friendly technologies {9}

freedom of association {3}

Emerging Basic

forced labor {4}

environmental responsability {8}

env. precautionary approach {7}

discrimination {6}

child labor {5}

2014

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT

OF QUALITY ASSESSMENT FOR

D ISCOVERY 2014

Average last twelve months for companies from emerging economies

Discovery 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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.


DISCOVERY SIGNATORY TO THE

GLOBAL COMPACT SINCE 2015

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.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS 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. (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


GPA

SIGNATORY TO THE

GLOBAL COMPACT SINCE 2003

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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.

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 management 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.

ENGAGEMENT REVIEW — 1st CSR reporting assessment — 1st discussion with the company since its entry into the portfolio

2015: conference call meeting Participants: the Head of Corporate Social Responsibility

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING — 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT PER PRINCIPLE FOR human right {1}

anti-corruption {10}

Outstanding

GPA

complicity {2}

Advancing env. friendly technologies {9}

freedom of association {3}

Emerging Basic

forced labor {4}

environmental responsability {8}

env. precautionary approach {7}

discrimination {6}

child labor {5}

2014

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT

OF QUALITY ASSESSMENT FOR

GPA 2014

Average last twelve months for companies from industrialized economies

GPA 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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.


GPA SIGNATORY TO THE

GLOBAL COMPACT SINCE 2003V

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.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS 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. (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


LOCALIZA RENT A CAR

NON SIGNATORY TO THE GLOBAL COMPACT

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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.

As a car rental company, human rights issues such as health and safety, education and working conditions (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.

ENGAGEMENT REVIEW — 3th CSR reporting assessment — 3th discussion with the company since its entry into the portfolio

2015: conference call meeting Participants: the Investor Relations Manager and the Marketing Manager

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING — 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT PER

ISSUE AREA FOR

L OCALIZA R ENT A C AR 2014

Human rights

Labor norms

Environment

Corruption

basic

emerging

advancing

outstanding

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT OF QUALITY ASSESSMENT FOR L OCALIZA R ENT A C AR 2014

Average last twelve months for companies from emerging economies

Localiza Rent A Car 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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.


LOCALIZA RENT A CAR

NON SIGNATORY TO THE GLOBAL COMPACT

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.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS 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. (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


ODONTOPREV

SIGNATORY TO THE

GLOBAL COMPACT SINCE 2008

INVESTMENT CASE

CORPORATE RESPONSIBILITY ISSUES

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.

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.

ENGAGEMENT REVIEW — 4th CSR reporting assessment — 4th discussion with the company since its entry into the portfolio

2015: conference call meeting Participants: the CEO, the IR Director and the IR Manager

COMPREHENSIVENESS OF THE COMPANY’S CSR REPORTING — 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.

R ESULT

OF COMPREHENSIVENESS ASSESSMENT

PER PRINCIPLE FOR

O DONTOPREV

human right {1} anti-corruption {10}

complicity {2}

Outstanding Advancing

env. friendly technologies {9}

freedom of association {3}

Emerging Basic

forced labor {4}

environmental responsability {8}

env. precautionary approach {7}

child labor {5}

discrimination {6} 2014

2013

2012

QUALITY OF THE COMPANY’S CSR REPORTING R ESULT

OF QUALITY ASSESSMENT FOR

O DONTOPREV 2014

Average last twelve months for companies from emerging economies

Odontoprev 0

20 Accessibility

40 Clarity

Comparability

60 Accuracy

80 Reliability

100 Timeliness

— 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 prominently featured on the corporate website.


ODONTOPREV SIGNATORY TO THE

GLOBAL COMPACT SINCE 2008

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.

SUGGESTED AREAS WITH POTENTIAL FOR PROGRESS 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. (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


NOTICE 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 profile. 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 financial, 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 financial markets. This marketing material is not intended to be a substitute for the fundâ&#x20AC;&#x2122;s full documentation or for any information which investors should obtain from their financial 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. Š 2016, de Pury Pictet Turrettini & Cie S.A. All rights reserved.


De Pury Pictet Turrettini & Cie S.A. 12, rue de la Corraterie P.O- Box 5335 CH-1211 Geneva 11 Tel. +41 22 317 00 30 Fax +41 22 317 00 33 www.ppt.ch

Should you have any questions about this report, please contact : Dominique Habegger Head of Cadmos Funds habegger@ppt.ch

Cadmos Emerging Markets Engagement Fund  

Buy & Care Responsible Investment Fund Integrated Performance Report 2015-2016

Read more
Read more
Similar to
Popular now
Just for you