The Schroder Sustainable Growth Fund (“theFund”) is a sustainable-focused investment strategy which adopts a traditionalmulti-asset investment approach that invests in a broad range of asset classes.The Fund’s strategic asset allocation (SAA) is formulated using Schroders’proprietary medium-term projections for asset class returns and riskexpectations. This includes a climate change adjustment, based on estimatedcosts or benefits of rising temperatures and potential regulatory andbehavioural changes. The climate change adjustment incorporates four factors:physical costs (effect of rising temperatures on an economy’s growth rate),transition costs (impact of steps taken to mitigate temperature increase suchas carbon taxes, and investment in clean energy), stranded assets (lossesincurred where carbon-based forms of energy are written off) and the net impacton inflation. The asset class return and risk expectations, inclusive of theclimate change adjustment, impact the asset allocation decision makingframework for this Fund, both in terms of setting the strategic assetallocation benchmark (SAA benchmark), as well as tactical portfolio positioningrelative to the SAA benchmark. A multi-faceted risk management framework isincorporated in the decision making process to manage volatility and mitigateinherent downside risks within the Fund.

The Schroder Sustainable Growth Fund has two sustainability objectives:

1) achieve a Fund sustainability score (Sustainability Score) of at least 2% better than the Fund’s SAA benchmark (Sustainability Objective) and

2) achieve a Fund carbon intensity score (Carbon Intensity Score) of less than 60% of the Fund’s SAA benchmark (Carbon Intensity Objective).  

The Sustainability Score of the Fund is measured by SustainEx™, Schroders Group’s proprietary tool that provides an estimate of the net "impact" that an issuer may create in terms of social and environmental "costs" or "benefits". It does this by using a range of different indicators with respect to that issuer, and quantifying them positively and negatively to produce an aggregate notional measure of the effect that the relevant underlying issuer may have on society and the environment. The result is expressed as an aggregate score of the sustainability indicators for each issuer, specifically a notional percentage (positive or negative) of sales or GDP of the relevant underlying issuer. The Sustainability Score of the Fund is derived from the SustainEx™ scores of issuers for Direct Investments and those Indirect Investments, such as those held by underlying funds managed by Schroders Group, where data is available. The SustainEx™ score shows month-end data.  

The Carbon Intensity Score contributes to a company’s overall Sustainability Score and is a measure of a company’s carbon emissions, having regard to the size of the company.

The Fund’s Carbon Intensity Score is sourced from third-party data and covers both scope 1 (direct emissions resulting from energy production) and scope 2 (indirect emissions, resulting from energy use) emissions of companies, normalised by $million of sales in USD. Additional detail on the Sustainability Score and Carbon Intensity Score are provided under the heading ‘Schroder Sustainable Growth Fund’ in the ‘Labour standards and environmental, social and ethical considerations’ section of the ‘Additional Information to the PDS’ booklet.  

The Fund seeks to achieve its Sustainability Objective and Carbon Intensity Objective by:

1) applying revenue exclusion screens (referred to as Negative Screens).

2) using our proprietary quantitative and qualitative tools which measure sustainability and governance practices to favour companies with positive or improving Sustainability Scores and Carbon Intensity Scores and good or improving governance.

3) influencing management teams and relevant stakeholders of investee companies and assets via engagement and voting activities, so that more sustainable practices (as defined by the Manager from time to time) are properly considered in managing those companies and assets.  

Individual companies identified by the Fund’s Negative Screens may still be held by exception if the Fund’s investment team believes the company is, or has committed to, contributing positively to either of the Fund’s two sustainability objectives (Sustainability Objective and Carbon Intensity Objective), or broader ESG initiatives. Additional examples of these exceptions are outlined under the heading ‘Schroder Sustainable Growth Fund’ in the ‘Labour standards and environmental, social and ethical considerations’ section of the ‘Additional Information to the PDS’ booklet. Companies held on this basis are reported monthly with the investment rationale provided (via the monthly fund commentary reports available at www.schroders.com.au).  

In addition to the above exceptions, the Fund can make allocations to Article 8 and 9 funds that are managed by Schroders Group and these allocations may be in the form of Indirect Investments. As such the Fund may, from time-to-time, inadvertently have a small indirect exposure to companies that would normally be excluded by its Negative Screens. This would typically be <1% of the Fund’s NAV. Article 8 and 9 funds and Indirect investments are defined in the 'Additional Information to the PDS’ booklet. These are explained further under the heading ‘Schroder Sustainable Growth Fund’ in the ‘Labour standards and environmental, social and ethical considerations’ section of the ‘Additional Information to the PDS’ booklet.  

The Fund’s Sustainability Score and Carbon Intensity Score are measured daily and reported to investors monthly (via the monthly fund reports available at www.schroders.com.au), on both an absolute basis and relative to the SAA benchmark.  

Note: SustainEx™ provides an estimate of the potential social or environmental externalities that a company or other issuer may create. It does this by using certain metrics with respect to that issuer and quantifying the positive and negative externalities of each of those metrics in economic terms to produce an aggregate measure. It utilises and is reliant on third party data (including third party estimates) as well as Schroders’ own modelling assumptions, and the outcome differs from other sustainability tools and measures. Where SustainEx™ relies on data and estimates produced by third parties, Schroders seeks to ensure that such data and estimates are accurate, but Schroders cannot and does not warrant the accuracy, completeness and adequacy of such third party data and estimates. Like any model, SustainEx™ will evolve and develop over time as Schroders continues to assess, refine and add to the metrics and their relative contributions. Generating SustainEx™ scores involves an element of judgment and subjectivity across the different metrics chosen by Schroders, and accordingly Schroders does not accept any liability arising from any inaccuracy or omission in, or the use of or reliance on, SustainEx™ scores. As the model evolves, changes made to how metrics are applied may result in changes to the SustainEx™ score of any issuer and ultimately the overall portfolio/portfolio score. At the same time, of course, the issuer’s SustainEx™ performance might improve or deteriorate.  

Schroders’ proprietary tools, including SustainEx™, may not cover all of the portfolio’s holdings from time to time, in which case Schroders may use a range of alternative methods to assess the relevant holding. In addition, certain types of assets (such as cash and certain equivalent securities) are treated as neutral and are therefore not considered by our proprietary tools. Other types of assets such as equity indices and index derivatives may not be considered by our proprietary tools and if so would be excluded from a portfolio’s sustainability score.