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.

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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.

Climate change

As a long-term investor, we believe climate change represents a systemic risk facing the economy, society and environment. We want to consider the risks and opportunities this presents to our investments in the coming decades. We have therefore set a long-term commitment (2050), a mid-term ambition (2030) and short-term objectives (2025).

• 2050 commitment: Net-zero investor.  Â
• 2030 ambition: To align with a Paris Agreement pathway (listed and non-listed investments) and Dutch Klimaatakkoord.  Â
• 2025 objectives: To align with a pathway towards achieving the Paris Agreement (listed investments) and Dutch Klimaatakkoord goals.^[1]

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The Kempen climate change policy can be found here (under climate change policy).

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_{[1]We use carbon intensity as a metric to come to the pathway of net-zero emissions. As we care about the direction of travel and reduction of carbon emissions in the economy, it might be that the actual reducing trend may deviate from the suggested average trend line. The pathway is derived from the pathway of the EU Benchmarks.}

Our fund approach to responsible investment

The investment objective of Kempen Sustainable Equity Funds is to offer long-term investors the opportunity to invest in a diversified portfolio of publicly traded shares of companies, open to interests of stakeholders, and who are willing to integrate environmental, social and governance criteria in their strategy. The Funds aim to select investments with a focus on long-term and sustainable growth.

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We aim to align with a pathway towards achieving the Paris Agreement and Dutch Klimaatakkoord goals for our portfolio, as well as the EU Paris Aligned Benchmark^[2]. We take several actions to achieve our aim. Firstly, due to the negative impact on climate change and/or the environment, we exclude companies involved in the extraction of fossil fuels or which derive significant revenues from power generation of fossil fuels. Secondly, we focus our engagement efforts on the most carbon intensive companies/sectors in our portfolio, in order to improve disclosure and policies that should contribute to a reduction in carbon intensity. Our voting policy also considers our climate policy. Thirdly, we integrate climate change risks and opportunities into our investment process.

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Kempen’s ESG policy is implemented in our strategy’s   investment process by the following pillars: Exclusion & Avoidance, Integration, Active ownership and Positive Impact.

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_{[2] The EU Benchmarks consists of two climate benchmarks, Climate Transition Benchmark and Paris Aligned Benchmark, which have the aim to reach net-zero emissions by 2050 - in line with the 1.5?C scenarios from the IPCC. As we care about the direction of travel and reduction of carbon emissions in the economy, it might be that the actual reducing trend may deviate from the average pathway. We use carbon intensity (based on Revenues) as the forward-looking climate metric.}

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1. Exclusion

In line with the general Kempen policy, the funds exclude all companies on the KCM Exclusion- or Avoidance list.

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Companies that are marked as a  ‘Fail’ against the criteria of the United Nations Global Compact are excluded.

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We determine a company’s ESG score (1-5) and exclude companies with a score of 1. Companies with a score of 2 are excluded on a ‘comply or explain’ basis.

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More information on our exclusion criteria and thresholds can be found here.

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The Funds also exclude companies based on additional sustainability criteria, as listed in the table below.

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2. ESG integration

In the investment process we assess the ESG profile of a company. We assess each company on a case-by-case basis, taking into account material risks in a given industry, in addition to a company’s respective risk exposure, strategy, management and disclosure.

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A lower ESG score requires a higher return on capital, as used in our valuation model. 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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ESG opportunities are also evaluated and might be part of the long-term growth rate of the company, as used in our valuation model.

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With regard to climate change, we prefer to invest in companies that integrate their climate risks and opportunities into their strategy, and are able to move towards a low carbon economy.

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On a quarterly basis, the Kempen Responsible Investment team screens the holdings of the Funds, and discusses the findings with the portfolio managers.Â

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3. Active ownership: engagements

The funds aim to have a continuous dialogue with all companies in its portfolio to improve the understanding of the company, improve shareholder returns and drive the sustainability of the company.

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Our engagement process defines clear objectives of which the progress and result is tracked and well documented. If at any stage the company refuses to cooperate, divestment has to be considered. With regard to climate change, we apply a general approach, where we focus on the most carbon intensive companies - and sectors.

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Over the last three years we engaged on issues such as: remuneration, environmental targets, sustainability of the value chain, privacy and data security, money laundering, bribery and ESG integration.

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You can find the engagement factsheet of NN Group here.

You can find the engagement factsheet of Siemens Healthineers here.

You can find the engagement factsheet of Nike here.

You can find the engagement factsheet of Beazley here.

You can find the engagement factsheet of Alphabet here.

You can find the engagement factsheet of Novo Nordisk here.

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3. Active ownership: Voting

Exercising our voting rights is also an essential part of our responsible investment philosophy. ISS provides us with voting recommendations based on our own voting and governance policy. Items are further analysed on a case-by-case basis.

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Often, we inform the company about our voting intention ahead of the meeting and, where there is a recommendation to vote against management, we ask the company to clarify their viewpoints. After careful analysis, we form our own opinion and vote accordingly.

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4. Impact

In the first instance, the fund creates positive impact by allocating capital to the companies helping deliver the transition to a more sustainable economy. Our approach results in a clear bias towards ESG leaders, and higher exposure to the Sustainable Development Goals. This way management is incentivized to improve their ESG profile, as they know they will be rewarded in the financial markets as a sustainable company with access to and a lower cost of capital.

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Secondly, impact is achieved by acting as an active owner and working with the company to improve strategy and operations around specific ESG issues. We expect management of a company to strike a balance between the interests of the different stakeholders. Value creation is more than financial returns. Employment growth, culture, diversity, resource efficiency, carbon emissions, R&D and customer satisfaction are also important outcomes.

For more information about the mid and long term risks associated with the investments:

• Prospectus
• Outlook 2020
• Asset Allocatie Outlook

^{* 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.}