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.

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OUR FUND APPROACH TO RESPONSIBLE INVESTMENT

The fund’s investment objective is to offer investors the opportunity to invest in an actively and professionally managed portfolio of smaller listed European companies, while at the same time complying with strict exclusion and sustainability criteria.

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Our ESG policy is fully implemented in our fund’s investment process across the three relevant pillars of: Exclusion, ESG integration and Active ownership. The figure 'ESG integration in the investment process' offers a step-by-step illustration of this implementation in our fund’s investment process.

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1. Exclusion

Our fund applies an automatic screen at the start of our investment process to exclude companies that are not sustainable. Our overall exclusion framework screens out investment in entities involved in the production of tobacco and of controversial weapons such as cluster munitions, anti-personnel mines, nuclear warheads, chemical and biological weapons.

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For the Sustainable European small-cap fund we additionally exclude entities involved in adult entertainment, alcohol, animal testing, fur, gambling, GMO, nuclear energy, thermal coal and weaponry. Furthermore, we only invest in companies that pass the UN Global Compact criteria and therefore exclude companies that receive a Watch List or Fail status.

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The next step in our process, the ‘Quick Scan’ phase, helps us to avoid companies that do not meet our sustainability screening criteria based on their activities and conduct. We apply a checklist to screen each company using MSCI ESG Research and Sustainalytics data.

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2. ESG integration

In the fundamental analysis we determine the Kempen ESG-score (1-5) of a company and evaluate whether the ESG profile would fit a sustainable portfolio. During the process we focus on each company on a case-by-case basis looking at the material risks in a given industry in combination with the company’s respective risk exposure, practices and disclosure. In this phase we use various data sources, including MSCI ESG Research and Sustainalytics. If our opinion deviates from the external ESG research providers we explain why. Furthermore we look into the company’s exposure to controversies and opportunities which could reduce or increase the ESG score. Based on the fundamental ESG analysis we form an opinion on the quality of a company’s ESG profile and give each company a score (1-5). A lower score requires a higher return as used in our Discounted Cash Flow (DCF) models.

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3. Active ownership: Engagement

As active long-term investors we perform comprehensive engagements with our portfolio companies with the objective to unlock value and reduce risk.

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We strongly believe that the level of engagement with our portfolio companies is significantly deeper than that of our competitors. We are in frequent dialogue with the management teams of our portfolio companies. Each controversial item, as well as every individual engagement, is well-documented. We monitor the progress the company is making and continue to use our influence to improve the companies ESG performance.

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In addition to the ongoing ESG screening efforts, our Responsible Investment team also performs a quarterly screen and may propose engagement with low ESG performers. The results of this screening are discussed in quarterly meetings and an action list is created based on the outcomes of every meeting.

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In 2018, we participated in 104 engagement calls and meetings on issues such as capital allocation, remuneration, sustainability, and social issues.

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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. 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.

^{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.}