2024 Responsible Investing Update

Introduction

NS Partners is pleased to share its fourth annual Responsible Investing (RI) Update, which highlights its progress and initiatives from RI efforts over the last year. This report includes highlights on stewardship, engagement and integration activities as they relate to financially material environmental, social and governance (ESG) issues.

As a global asset manager, NS Partners takes its fiduciary responsibility seriously, demonstrated through its fundamental stock selection and comprehensive RI approach. NS Partners believes that ESG factors can have a material impact on investment performance and present unique risks and opportunities for investee companies. As such, ESG factors that are financially material are considered, along with traditional financial factors, as part of the firm’s bottom-up research and stock selection approach.

The evolution of responsible investing at NS Partners

Since inception, NS Partners has considered material factors, including ESG factors, in its investment process. NS Partners became a signatory to the United Nations Principles for Responsible Investing (PRI) in 2016 and has since developed a Responsible Investment Policy that aligns with its commitment. NS Partners continues to look for ways to enhance the risk-adjusted returns for its clients, while further developing its approach to integrating material ESG factors into its investment process.

Evolution of NS Partners’ approach to responsible investing​

* Task Force on Climate-Related Financial Disclosures.​

As of August 2024. Chart is for illustrative purposes only and is not drawn to scale

Source: NS Partners Ltd

ESG integration in the investment process

By ensuring that financially material ESG factors and their trajectory over time are captured in the investment process, the firm’s policy on responsible investing aligns with the duty to seek the best returns for clients.

Industry collaboration

Collaborative initiatives

NS Partners participates in collaborative engagements and initiatives to pool resources and speak with a stronger unified voice to protect the interests of shareholders in the companies in which it invests on behalf of its clients.

NS Partners is a supporter of the Task Force on Climate-Related Financial Disclosures (TCFD)¹ recommendations. As supporters of the TCFD, NS Partners is currently working to publish its TCFD-aligned disclosure describing its approach to identifying, assessing and managing climate-related risks in its investment process. This report will be available in Spring 2025.

Since 2020, NS Partners has been a member of Climate Action 100+, an investor initiative to engage the world’s largest corporate greenhouse gas emitters on their actions on climate change. As part of this initiative, NS Partners continues to participate in the collaborative engagement with Lockheed Martin Inc.

NS Partners is a supporter of the International Corporate Governance Network (ICGN) through its affiliation with member Connor, Clark & Lunn Financial Group (CC&L Financial Group).

In February 2016, NS Partners became a signatory to the PRI initiative.

Collaborative initiative: 2024 Global Investor Statement to Governments on the Climate Crisis

NNS Partners signed the 2024 Global Investor Statement to Governments on the Climate Crisis, a sign-on statement advocating for greater public policy action to enable investors to meet their climate commitments and limit global warming in line with the objectives of the 2015 Paris Agreement.

UN PRI assessment results

NS Partners is pleased to share its 2024 PRI Assessment Summary Scorecard. NS Partners is ranked above median in all reported measurement categories, and improved on the Policy Governance and Strategy and Confidence Building Measures module scores from 2023.

The scorecard is calculated according to the PRI’s assessment methodology, which converts the indicator scores to an aggregate module score using a points-based system ranging from 0–100. The scoring methodology for the 2024 Reporting Framework remains unchanged from 2023. More information on the PRI’s reporting and assessment can be found on their website.

A copy of the 2024 PRI Assessment is available upon request.

Climate change

Carbon footprint report – Sustainable Global Emerging Markets Fund

As supporters of the TCFD, NS Partners is committed to measuring and disclosing the carbon footprints of its core funds.

In addition to NS Partners’ ESG integration process, the Sustainable GEM Fund excludes companies that derive a meaningful portion of revenue from fossil fuel investments, among other screens for issuers with high externalities or social costs. The Sustainable GEM Fund has outperformed the benchmark in terms of its carbon intensity and weighted average carbon intensity (WACI). While the carbon footprint of the portfolio is an outcome of its investment process, it is not specifically targeted. NS Partners believes its investments in high-quality issuers and industry leaders has contributed to its lower carbon footprint relative to the benchmark.

Sustainable GEM Portfolio vs Benchmark Carbon Intensity

Figure 1: Portfolio carbon exposure overview

Source: Institutional Shareholder Services Inc. (ISS) for the reporting period October 1, 2023–September 30, 2024, in USD.

Note: The main contributor to the increase in the WACI portfolio is driven by the JSW Energy holding, an Indian power generation company. They lead the industry carbon emission mitigation practices with more than 70% of their power generated from renewable sources. In addition, they have targets to further reduce their emissions by 50% by 2030. NS Partners will continue to monitor JSW’s progress on this pathway to cut emissions.

In addition to the fund’s overall lower carbon footprint, the Sustainable GEM Fund has lower emissions versus the benchmark in most sectors. This is shown in the figure 2 below by the positive issuer selection effect, particularly in the in the energy sector, and across most sectors in Q3 2024. Similar positive selection effects across most sectors were also seen over the previous three quarters.

Sustainable GEM Portfolio Issuers selection effect by sector

Figure 2: Issuer selection effect

Source: ISS as of September 30, 2024, in USD.

Stewardship & Engagement

Stewardship and engagement are key components of NS Partners’ active ownership efforts. NS Partners believes that commitment to responsible investment cannot be fulfilled by analysis alone. We believe engagement with the companies we invest in is crucial to deepening our understanding and driving improvements on material ESG risks or opportunities.

As an affiliate of CC&L Financial Group, NS Partners receives support from the centralised Stewardship & Engagement (S&E) team. The S&E team supports NS Partners’ investment managers on engagements with investee companies, participation in collaborative initiatives with like-minded investors and the facilitation of proxy voting.

Proxy voting

Approach to proxy voting

NS Partners has a fiduciary duty to vote proxies both in a timely manner and in the best interests of its clients. NS Partners’ proxy voting policy is based on the central tenet that good corporate governance enhances long-term shareholder value.

As a signatory of the UN PRI, NS Partners considers ESG implications in its proxy voting. For specific proposals related to ESG, issues will be reviewed and analysed on a case-by-case basis. NS Partners will generally vote in favour of proposals that seek to: improve disclosure of environmental risks, improve transparency regarding social issues and favour proposals that encourage good governance and greater independence – provided it is in the best interest of shareholders.

Over the past year, the Sustainable GEM Fund voted at 95 company meetings, voting against management on 8% of the 769 proposals NS Partners was eligible to vote on.

Proxy Voting Highlights

Figure 3: Total proxy votes – Sustainable Global Emerging Markets

Source: ISS for the reporting period October 1, 2023 to September 30, 2024.

Figure 4: Votes against management by category

Source: ISS for the reporting period October 1, 2023 to September 30, 2024.

Table 1 – Sustainable Global Emerging Markets – Votes against management and ISS by proposal category

Source: ISS for the reporting period 10/01/2023 to 09/30/2024.

*Votes against ISS indicate where NS Partners’ custom voting policy deviated from ISS’ benchmark voting policy.

Proxy Voting examples

Jollibee Foods Corporation

In June 2024, NS Partners voted against management on several director election proposals due to overboarding concerns at Jollibee Foods, a fast food restaurant service originating from the Philippines. Two directors on the company’s board were deemed to be overboarded, the nominee chair of the audit committee served on a total of six public company boards while an incumbent board member served as a director of nine public companies. Since local best practices suggest that directors are considered to be overboarded if they sit on more than five publicly listed boards, new regulations, an increase in board risk oversight and demands for engagement with shareholders are additionally driving the time commitment required to be an effective board member. As such, NS Partners voted against the director election of the overboarded nominees.

Minor International Public Company Limited

NS Partners voted against management at Minor International Public Company’s annual meeting in March 2024. Minor International is a multi-national company based in Thailand that specialises in luxury lifestyle and hospitality services. NS Partners voted against the election of the company’s executive director chair and non-executive director nominees due to the board not meeting the best practice of at least one-third board independence, which could jeopardize the exercise of objective judgement and board opinion.

Varun Beverages Limited

In March 2024, NS Partners voted against management at the annual meeting of Varun Beverages, a beverage service provider. There were concerns about the independence of the company’s board of directors, a lack of performance metrics disclosure and insufficient rational for remuneration packages. Other issues included a lack of transparency surrounding executive stock option disclosure and performance-based pay. The absence of such information makes it challenging for shareholders to validate rewards and justify performance-based pay. Due to insufficient disclosure, NS Partners voted against the proposals for renumeration approval and the election of certain directors.

Engagement

Approach to engagement

NS Partners engages with management of the companies in its portfolios and the broader investment universe as part of the investment research process. Portfolio managers regularly meet with management teams of investee companies and review strategic and operational objectives, including ESG issues. The S&E team also supports the investment team on engagements with investee companies on ESG concerns.

Engagement example

Entero Healthcare Solutions Ltd.

In August 2024, NS Partners engaged with an Indian healthcare solutions provider, Entero Healthcare Solutions, regarding the company’s board independence. The proportion of independent directors on the company’s board was below NS Partners’ guideline of 50%. The company outlined that local regulations require that if the chair of the company is an independent director, then only one third of directors on the board are required to be independent. Following the annual meeting, the company would meet these requirements and would then be in line with relevant regulations and local best practices. As such, NS Partners supported management on the election of a non-executive director at the annual meeting.

Governance summary

As advocates for good corporate governance, NS Partners continues to monitor various governance metrics and performance of investee companies. Below is a look at the progression in female representation on boards, average board independence, and the proportion of companies with separate CEO and Chair roles.

In 2024, average female representation and director independence on boards of companies saw progression, while the percentage of issuers with separate Chair and CEO slightly decreased in in the Sustainable GEM Fund.

Figure 5: Board statistics over time

*Source: MSCI Data as of September 30, 2024, in USD.

MSCI ESG ratings

An analysis of our Sustainable GEM Portfolio based on MSCI ESG ratings suggests scoring of representative mandate across all rating categories is better than its respective benchmark. In addition, the proportion of “ESG Leaders” in our representative portfolio is higher than that of its respective benchmark.

Figure 6: Weighted average ESG score

Source: MSCI as of September 30, 2024 in USD.

Figure 7: ESG ratings distribution

Source: MSCI as of September 30, 2024 in USD.

Corporate Social Responsibility

NS Partners, as a firm, is committed to being a responsible corporate citizen and strives to have a positive impact on the communities where we live and work. In partnership with CC&L Financial Group and its Business Practices Working Group (BPWG), NS Partners recognises that our business practices should consider the impact on our workplace, community and society. In addition, through the CC&L Foundation, NS Partners supports philanthropic and volunteering initiatives.

The BPWG is focused on three areas:

• Diversity, equity, inclusion and belonging (DEIB);
• The health and wellness of people who work here; and
• Environmentally sustainable business practices.

To oversee the execution of initiatives aligned with these themes, CC&L Financial Group has organized working groups and committees comprising members from a range of business functions, seniority levels, geographic locations and demographics. There are plans and policies in each of these areas.

Below provides a summary of some of the initiatives undertaken in these areas over the last 12 months.

Diversity, Equity, Inclusion & Belonging

We are committed to workforce diversity, promoting equity and creating a culture of inclusion. To ensure our people feel a sense of belonging, we strive to foster a culture that unites people of diverse backgrounds and perspectives, in an environment where everyone has the opportunity to achieve personal and professional success.

Over the last 12 months, DEIB initiatives focused on education, communications and events to promote a culture of inclusion, celebration and learning throughout the year. Some examples include:

• Observed and celebrated Black History Month, Lunar New Year, International Women’s Day, LGBTQ2S+ Pride Month and National Day for Truth and Reconciliation.
• Launched the 4 Seasons of Reconciliation Course across the company that describes the foundation of the relationship between Canada and Indigenous peoples and promotes a renewed relationship through education.
• Introduced a Demographic data collection process to better understand the needs of our people.

Health and Wellness

We believe the health and well-being of the people who work here is critical to maintaining our collective performance. We are committed to undertaking initiatives that support a safe and healthy work environment within a culture where everyone feels secure and supported.

The Health & Wellness committee has focused on the following initiatives over the last 12 months:

• Hosted Health and Wellness Month, which included workshops on topics such as “the power of embracing failure” and “the benefits of meditation.” In addition, the BPWG held a company-wide fitness challenge where participants collectively took over 23 million steps to travel 16,895 kilometres. This challenge was a fantastic way to motivate everyone to get active. Prizes were awarded to the top participants, including those who were consistent throughout each week and all month.
• Celebrated Mental Health Month, including a webinar with a former Olympian on managing stress, building resilience and harnessing the connection between mental and physical fitness.
• Developed a framework for employee-led health and wellness activities, including supporting a team comprising CC&L Financial Group and affiliate participants in the Bay Street Hoops charity basketball tournament.

Environmental Stewardship

We believe that through our actions we can contribute to the vitality of our environment, and we are committed to undertaking initiatives that support ongoing environmental stewardship.

Over the last 12 months, the Environmental Stewardship Committee has focused on the following initiatives:

• Researched the sustainability practices of our travel so that individuals can consider this information in making travel choices.
• Provided education on low emission commuting solutions and centralised information on office service amenities to create awareness of environmentally friendly options.
• Delivered events and communication circulars to promote a culture of environmental consciousness and create volunteering opportunities such as Earth Day City Clean-Ups and Bike-to-Work Week.

CC&L Foundation

We aim to enrich the communities in which we live and work by creating opportunities for both philanthropy and volunteerism through CC&L Financial Group and its affiliates in support of causes that are important to our clients, employees, partners and stakeholders.

The CC&L Foundation has provided support to a broad range of organizations that focus on promoting a better environment, improving education, advancing science and medicine, creating stronger communities and encouraging the arts. Over the last 12 months, CC&L Foundation has supported a broad range of philanthropic and volunteer opportunities, some of which are highlighted below:

• Provided support through the Canadian Red Cross and the Jasper Community Team Society to those impacted during the Alberta wildfires.
• Organised an employee-led Week of Giving campaign focused on strengthening communities, alleviating poverty and addressing food insecurity. This initiative supported CC&L Financial Group’s community partners, including the United Way. This firm-wide initiative has raised almost $8 million over 20+ years.
• Made a multi-year commitment to BC Children’s Hospital Foundation to the Heart Centre program to purchase essential medical equipment to support children across the province who face serious injuries and illnesses.
• Participated in the CanSupport Dragon Boat race to raise awareness and funds for the Cedars Cancer Foundation to improve the quality of life of cancer patients and support fundamental research initiatives.
• Aided students through bursaries and scholarships, including Indspire’s Building Brighter Futures program, the National Educational Association of Disabled Students and the Onion Lake Education Trust Fund.
• Held an internal fundraiser to support inclusivity and allyship during Pride Month, with donations directed to Pflag chapters across Canada.
• Participated in a Canada-wide blood drive campaign in partnership with Canadian Blood Services and Héma-Québec.
• Became a Moisson Montreal ambassador, volunteering time and contributing financially to address food insecurity.