Kempen Capital Management is an asset manager that believes in stewardship and investment focusing on the long-term for the benefit of all stakeholders. Value creation is at the heart of the services we provide to our clients. We believe that being an engaged shareholder on environmental, social and governance (ESG) issues and retaining a long-term focus, is critical to helping our clients to preserve and create sustainable wealth that has positive real world impact and economic returns.

Kempen wide approach to responsible investment

We are committed to create sustainable alpha. The four pillars of our ESG-policy are:

• ESG integration: Ensuring sustainability risks and opportunities are adequately considered in our investment analysis and processes.

• Exclusion & avoidance: Not investing in companies involved in controversial activities or conduct.

• Active ownership: Being responsible stewards of our clients’ capital and using our influence through engagement and voting to improve corporate behaviour on specific ESG issues and achieve positive change

• Positive impact: Investing with an objective to achieve positive real world outcomes and impact, such as contributing to the UN Sustainable Development Goals.6

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To put our mission and vision into practice we engage with our investee companies on a wide array of strategic, financial, and ESG topics. As an active owner we use our influence to improve our investee companies’ ESG performance. This helps us address some of the most pressing and important sustainability issues facing business and the world. Our focus themes for engagement are: human rights, labour rights, climate change and governance.

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Through collaboration with other investors and industry think tanks we contribute to the development of principles and standards of corporate responsibility both at sector levels, as well as investee company level.

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Our full voting records are available here.

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OUR FUND APPROACH TO RESPONSIBLE INVESTMENT

Kempen’s ESG policy is fully implemented in our fund’s investment process across the three relevant pillars of:  Exclusion, Integration and Active ownership.

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1.  � Exclusion

In line with the general Kempen policy, the Kempen Euro Credit Strategies^[1] exclude all companies on the KCM exclusion- or avoidance list. Companies on these lists are either involved in the production of controversial weapons, they derive a significant portion of their revenues from the production or distribution of tobacco, or have been involved in serious controversies.

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The Kempen (Lux) Euro Sustainable Credit Fund combines the integration of the ESG criteria described above with additional exclusion criteria. Companies scoring an MSCI ESG rating of CCC, with a ‘fail’ marked against the criteria of the United Nations Global Compact or those companies that attract a red flag on the MSCI ESG impact monitor are excluded. Furthermore, the fund excludes companies with significant involvement in the production of military weapons or the production of nuclear energy, companies involved in the extraction of thermal coal or companies that have significant thermal coal reserves, companies which are significantly involved in the production or distribution of alcohol and companies involved in adult entertainment or companies involved in gambling. An engagement approach is chosen for companies involved in Genetically Modified Organisms (GMO), factory farming, animal testing or if less than 5% of the revenue is derived from the production of fur or fur products.

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TABLE 1

ADDITIONAL EXCLUSION CRITERIA FOR KEMPEN EURO SUSTAINABLE CREDIT FUND

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2. ESG Integration

Responsible Investment in the Kempen Euro Credit Strategies is not limited to the exclusion of companies. Rather, ESG criteria are an integral part of the investment process. To form a fundamental opinion on a company, the portfolio managers assess the business profile, the financial profile and the ESG profile. Research provided by MSCI ESG Research LLC is used as a basis for the ESG assessment.  �

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A low score on ESG criteria can result in the demand for an additional premium on the company’s bonds and/or initiation of an engagement with the issuer. If ESG risks are deemed too severe, an investment in the company will be avoided and/or existing holdings will be sold.

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On a quarterly basis, the Kempen Responsible Investment team screens the holdings of the Kempen Euro Credit Strategies, and discusses the findings with the portfolio managers. Special attention is paid to companies scoring an MSCI ESG rating of B or lower, those with a ‘fail’ marked against the criteria of the UN Global Compact or those companies that attract a red flag on the MSCI ESG impact monitor. Companies in carbon intensive sectors are also given special attention.

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3. Active Ownership

For our Kempen Euro Credit Strategies, we distinguish between three types of engagement. They are i) an engagement for awareness, ii) an engagement for change, and iii) a public policy and/or systemic engagement. Engagement for awareness is aimed at raising awareness on certain issues with a company and/or collecting more information on a specific ESG issue. Engagement for change, which could follow an engagement for awareness, has the goal of achieving a specific SMART goal. The third form of engagement relates to seeking an improvement in a public policy or a system relevant to wider capital markets

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Our engagement process defines four milestones:

1. Raise concern with the company;

2. Company acknowledges the issue;

3. Company sets out a strategy / agrees to improve;

4. Company implements the strategy. �

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Our engagement could start at any of the first three milestones. When a milestone is reached, a document of proof is attached to the engagement case and the engagement will move on to the following milestone. When the fourth milestone is reached, the engagement is closed, but we continue to monitor the company. If at any stage the company refuses to cooperate, divestment has to be considered. To measure willingness to cooperate, we set specific timelines for the engagement.

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Currently, we have no engagement cases with companies that we hold in the Kempen (Lux) Euro Sustainable Credit Fund. However, the Kempen Euro Credit Strategies, began an engagement with Bayer in 2018, following their acquisition of Monsanto. Through the acquisition, Bayer inherited several significant controversies in the field of genetically modified organisms (GMOs). The goal of our engagement is to get a formal and written statement from the company which states that they will not sue small holder farmers for the unintended use of Bayer licensed GMO crops. It also asks the company to set a target for the number of farmers that receive education on their crop protection products.

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In addition we have ongoing engagement cases with Volkswagen on its company culture, Cez on the use of thermal coal (you can find the engagement factsheet here), Glencore on climate action (you can find the engagement factsheet here) and Huntsman on ESG disclosure. In July 2018, Huntsman was upgraded from ‘CCC’ to ‘B’ by MSCI ESG, and the company’s Sustainability report, published in 2018, includes an overview of its progress towards alignment with the UN Global Compact Ten Principles for the first time.

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_{[1] The Kempen (Lux) Euro Credit Fund, Kempen (Lux) Euro Credit Fund Plus, Kempen (Lux) Euro Sustainable Credit Fund and Kempen (Lux) Euro High Yield Fund}

^{Although Kempen Capital Management N.V.’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.}