Ausbil Active Sustainable Equity Fund

Ausbil's sustainable approach to investing initially excludes companies that have material exposure to 'controversial activities'. Ausbil then applies its proprietary ESG research to determine the sustainability profile of remaining companies. Companies that Ausbil determines to have poor sustainability profiles are excluded and the Fund is then allowed to invest in companies that are determined by Ausbil to have relatively good sustainability profiles.

The Fund’s investments are regularly reviewed to determine whether they continue to form part of the Fund’s investible universe. If Ausbil becomes aware that the Fund is invested in a company that no longer forms part of the Fund’s investible universe, the investment will be sold in a reasonable period of time.

Exclusions for controversial activities

Initially, the Fund excludes companies with material direct and/or indirect exposure to controversial activities (see below for more information about material thresholds), as follows:

•        the production or distribution of alcohol, gambling, adult content and adult entertainment;

•        the distribution of tobacco;

•        the production or distribution of weapons & armaments;

•        the production or distribution of predatory lending products;

•        animal cruelty;

•        the logging of old growth forests;

•        non-remediated case(s) of human rights violations and/or inadequate risk management of potential human rights violations, including in supply chains;

•        the mining and/or extraction of uranium; and

•        the exploration, mining and/or distribution of fossil fuels, such as oil, gas, oil sands and coal, unless a company plays a net positive role in the transition to a low carbon economy. Ausbil’s ESG research team has the discretion to use their ESG research to make this assessment and applies it infrequently, based on companies having either:

o   highly credible climate change commitments; and/or

o   earnings from decarbonisation-related activities that exceed earnings from activities that have negative climate change impacts.

Material direct (eg manufacturing, development, or trading of) and/or indirect (eg provision of services/components to a controversial industry) exposure is defined as 10% or more of earnings from one or a combination of the above controversial activities. A company’s earnings before interest and taxes (EBIT) is generally used to assess the earnings of a company and, if it is not available, then another reasonable measure or estimate of earnings is used.

Furthermore, the universe is refined to exclude companies with a direct exposure (0% of earnings) to:

•        the production of tobacco and tobacco-based products; and

•        the production of controversial weapon & armaments.

Please see the Fund’s Controversial Activity Exclusion Policy available at www.ausbil.com.au for further information on controversial activities, including direct and indirect examples, and the material threshold that is applied to each activity.

Application of ESG research

Following the exclusion of companies based on the Fund’s Controversial Activity Exclusion Policy, Ausbil’s proprietary ESG research is applied to the Fund.

Ausbil’s dedicated ESG team researches on a proprietary basis and assesses a company based on the industry in which the company operates in (ie what a company does) and the company’s ESG factors (ie how a company manages these factors). Ausbil uses this process to determine a company’s sustainability profile and sustainability score.

Companies that have poor sustainability profiles in Ausbil’s view are filtered and excluded from the investible universe. There are many factors that might contribute to Ausbil’s view that a company has a poor sustainability profile, but examples include companies with poor employee safety and/or workplace practices and companies that Ausbil considers having significant, persistent and unresolved corporate governance issues, conflicts of interest in ownership and/or poor Board structures.

Portfolio construction

The remaining companies in the investible universe are regarded as having relatively good sustainability profiles in Ausbil's view. Ausbil ranks each remaining company by equally combining Ausbil’s sustainability score (as determined by Ausbil’s ESG research) with Ausbil’s equity analyst’s conviction score, which is determined by Ausbil’s proprietary company level research.

The final step in Ausbil's sustainable approach to investing is the construction of a portfolio of companies that ensures at least half of the Fund’s portfolio consists of the top third ranked companies.

Active engagement

Ausbil believes that engagement with companies contributes to better informed investment decisions, can reduce the risk of capital destruction and can potentially expand the companies that it may invest in.

Ausbil actively engages with companies on sustainability issues and has an active voting policy. The active engagement takes the form of a direct and individual dialogue between Ausbil and companies (eg the board, management, sustainable/ESG department etc) and stakeholders (eg industry bodies) through meetings, company visits, written exchanges etc. The aim is to raise the awareness of companies and to receive additional information from companies on specific topics, to encourage them to adopt industry best practice and adopt transparency on environmental, social (including labour standards) and corporate governance (ESG) issues.

In addition to company and industry engagement, Ausbil actively engages at an environmental, social and/or governance policy level, for example submissions to Australian Government or industry body led policy discussions/enquiries. Ausbil also actively participates in relevant collaborative engagements with other investors, eg the Principles for Responsible Investment.

Ausbil Active Sustainable Equity Fund

Ausbil's sustainable approach to investing initially excludes companies that have material exposure to 'controversial activities'. Ausbil then applies its proprietary ESG research to determine the sustainability profile of remaining companies. Companies that Ausbil determines to have poor sustainability profiles are excluded and the Fund is then allowed to invest in companies that are determined by Ausbil to have relatively good sustainability profiles.

The Fund’s investments are regularly reviewed to determine whether they continue to form part of the Fund’s investible universe. If Ausbil becomes aware that the Fund is invested in a company that no longer forms part of the Fund’s investible universe, the investment will be sold in a reasonable period of time.

Exclusions for controversial activities

Initially, the Fund excludes companies with material direct and/or indirect exposure to controversial activities (see below for more information about material thresholds), as follows:

•        the production or distribution of alcohol, gambling, adult content and adult entertainment;

•        the distribution of tobacco;

•        the production or distribution of weapons & armaments;

•        the production or distribution of predatory lending products;

•        animal cruelty;

•        the logging of old growth forests;

•        non-remediated case(s) of human rights violations and/or inadequate risk management of potential human rights violations, including in supply chains;

•        the mining and/or extraction of uranium; and

•        the exploration, mining and/or distribution of fossil fuels, such as oil, gas, oil sands and coal, unless a company plays a net positive role in the transition to a low carbon economy. Ausbil’s ESG research team has the discretion to use their ESG research to make this assessment and applies it infrequently, based on companies having either:

o   highly credible climate change commitments; and/or

o   earnings from decarbonisation-related activities that exceed earnings from activities that have negative climate change impacts.

Material direct (eg manufacturing, development, or trading of) and/or indirect (eg provision of services/components to a controversial industry) exposure is defined as 10% or more of earnings from one or a combination of the above controversial activities. A company’s earnings before interest and taxes (EBIT) is generally used to assess the earnings of a company and, if it is not available, then another reasonable measure or estimate of earnings is used.

Furthermore, the universe is refined to exclude companies with a direct exposure (0% of earnings) to:

•        the production of tobacco and tobacco-based products; and

•        the production of controversial weapon & armaments.

Please see the Fund’s Controversial Activity Exclusion Policy available at www.ausbil.com.au for further information on controversial activities, including direct and indirect examples, and the material threshold that is applied to each activity.

Application of ESG research

Following the exclusion of companies based on the Fund’s Controversial Activity Exclusion Policy, Ausbil’s proprietary ESG research is applied to the Fund.

Ausbil’s dedicated ESG team researches on a proprietary basis and assesses a company based on the industry in which the company operates in (ie what a company does) and the company’s ESG factors (ie how a company manages these factors). Ausbil uses this process to determine a company’s sustainability profile and sustainability score.

Companies that have poor sustainability profiles in Ausbil’s view are filtered and excluded from the investible universe. There are many factors that might contribute to Ausbil’s view that a company has a poor sustainability profile, but examples include companies with poor employee safety and/or workplace practices and companies that Ausbil considers having significant, persistent and unresolved corporate governance issues, conflicts of interest in ownership and/or poor Board structures.

Portfolio construction

The remaining companies in the investible universe are regarded as having relatively good sustainability profiles in Ausbil's view. Ausbil ranks each remaining company by equally combining Ausbil’s sustainability score (as determined by Ausbil’s ESG research) with Ausbil’s equity analyst’s conviction score, which is determined by Ausbil’s proprietary company level research.

The final step in Ausbil's sustainable approach to investing is the construction of a portfolio of companies that ensures at least half of the Fund’s portfolio consists of the top third ranked companies.

Active engagement

Ausbil believes that engagement with companies contributes to better informed investment decisions, can reduce the risk of capital destruction and can potentially expand the companies that it may invest in.

Ausbil actively engages with companies on sustainability issues and has an active voting policy. The active engagement takes the form of a direct and individual dialogue between Ausbil and companies (eg the board, management, sustainable/ESG department etc) and stakeholders (eg industry bodies) through meetings, company visits, written exchanges etc. The aim is to raise the awareness of companies and to receive additional information from companies on specific topics, to encourage them to adopt industry best practice and adopt transparency on environmental, social (including labour standards) and corporate governance (ESG) issues.

In addition to company and industry engagement, Ausbil actively engages at an environmental, social and/or governance policy level, for example submissions to Australian Government or industry body led policy discussions/enquiries. Ausbil also actively participates in relevant collaborative engagements with other investors, eg the Principles for Responsible Investment.