H2 2024 Impact Report - East Capital Global Emerging Markets Sustainable

This report sets out the Principal Adverse Impact (“PAI”) indicators according to the EU’s Sustainable Finance Disclosure Regulation (“SFDR”). It then highlights the key metrics the portfolio management team uses to assess the impact of the fund’s investee companies on the surrounding world.

• Our fund’s GHG intensity is 82% below the benchmarks. We do not invest in fossil fuel companies and would typically not invest in companies with a GHG intensity considerably higher than their peers.
• Our fund‘s exposure to negative biodiversity impact / hazardous waste is nil / very low, we would not invest in high risk companies as we avoid misalignment with SDG. We are TNFD early adopters and actively engage with portfolio holdings within Nature Action 100 initiative.
• Due to lack of data on gender pay gap in emerging markets, we focus on board gender diversity. Our portfolio previously lagged the benchmark, but we are now above it as the proportion of female board members has increased materially to 21% from 14% in H1 2023. It remains a topic on which we often engage with our holdings. Read our article on Women in the boardroom.
• As a Financial Sector Deforestation Action (FSDA) member, we map deforestation risks in our portfolio and engage with high risk companies on deforestation issues.

Carbon intensity versus benchmark

• While the data in the table above is sourced from an external provider, we also calculate fund carbon intensity based on reported emissions in our internal database (i.e. we include emissions of companies that may not be picked up by data providers).
• Data coverage has been increasing dramatically in the last few years, in part due to regulation (particularly in India), though also engagement efforts from investors like ourselves; for example, we actively participate in the CDP Non-Disclosure Campaign to improve environmental data including climate data, targeting all our holdings in the fund which do not report to CDP. See a case study published by CDP.

Case study: SDGs as a lens for structural growth - Revenue growth for Hyundai Electric, a leading transformer producer from Korea

SDG Impact

• We assess SDG impact using a proprietary tool, which is explained in detail in a PRI case study and featured as a best practice responsible investment example for China.
• East Capital SDG VCA (value chain analysis) combines revenue exposure and SASB mapping to identify the two most material SDGs for a company’s value chain. The tool gives a score of -100 to 100, based on current impact and 3-5 year outlook. Impact is assessed based on materiality, intentionality, additionality and criticality.
• We currently assess that 56% of the fund has a strong positive impact on one or more SDGs. Because we require a score of above 25 (“weak positive impact”) to be included in the portfolio, 100% of our companies have a positive impact on one SDG.

Case studies

SDG 1: No poverty

Gentera is the leading microfinance institution in Mexico and Peru, providing financial services to the underserved segment in the region. They have been the gateway to the financial system for more than 13 million people.

SDG 3: Good health and well-being

Yatharth Hospitals is a private hospital chain based in northern India that focuses on bringing cutting-edge medical treatments to the smaller cities; for example they performed the first liver transplant in Noida.

SDG 7: Affordable and clean energy

Renew, India’s largest renewable energy company by total energy generation capacity, with a total portfolio of 10.0 GW as of Q2 2024, around 7% of India’s total renewable capacity (excluding hydro).

SDG 9: Industry, innovation and infrastructure

Hyundai Electric is a large transformer producer, which is a key (and undersupplied) input into the electrification value chain. The company is a member of RE 100 and is targeting fully renewable power use in its Korean factories by 2040.

SDG 11: Sustainable cities and communities

Empower, the world’s largest district cooling company listed in Dubai. District cooling is 50% more energy efficient than air conditioning, which is crucial in the UAE where air conditioning accounts for 70% of overall GHG emissions.

Stewardship

During 2024, we voted at 104 meetings (94%) of the 111 shareholder meetings where we were able to vote; in 45 meetings (43%) we voted against some items.

We voted against items that are not aligned with our voting policy, part of our ESG policy, such as insufficient gender diversity at board level or overly long auditor tenure.

Sustainable Investment Definition

• ESG analysis at East Capital is done by the Portfolio Managers and Analysts who cover the companies using robust proprietary tools, such as East Capital ESG scorecard and East Capital SDG VCA, and reviewed by the ESG team.
• We classify “sustainable investment" using 3 binding elements that leverage the results of these proprietary tools. These elements are outlined below.
• As of 31 December 2024 we assess that 97% of the fund is classified as sustainable. There was one holding, representing 1.6% of NAV, which did not meet our test for sustainable investments. This holding meets our sustainability assessment, but the standard quarterly review shows that this company does not meet global standards as assessed by an external provider. As a result, we are currently reviewing the position and have decided to classify the holding as non-sustainable.
• The remainder of the “not sustainable” investments (1.3% of the NAV) was represented by cash which the Investment Manager maintains for liquidity reasons.
  
  

1. Sector based and norms-based screening
   I. Companies with >5% of their revenues from fossil fuels, weapons, tobacco, gambling, pornography and alcohol;
   II. We also use a third-party provider to check for breaches of UN Global Compact.

2. SDG VCA tool of at least 25
   I. This ensures companies have a net positive impact on the SDGs - we have removed 6 companies due to too low a score and screened out many more.

3. Company is classified as sustainable as per our “three step test”

   I. Contribution to E and/or S	>60% score in E&S section of ESG scorecard.
   II. No significant harm to E or S	No red flags related to E&S issues and compliance in screening.
   III. Good governance practices	>60% in G section of ESG scorecard and no more than 2 red flags related to G.

¹ MSCI Emerging Markets Index. No specific index has been designated as a reference benchmark for the purpose of attaining environmental or social objectives.

² We do not report data for the benchmark because this is an absolute measure that is related to the size of the fund, i.e. owning 1% of a company with 100 tonnes of Scope 1 emissions would result in 1 tonne of Scope 1 emissions attributable to the fund.

³ This relates to a port management company whose fossil fuel exposure is insignificant (i.e. less than 5%) and purely for internal use.

⁴ While coverage by the data provider is below 100%, our investment and screening processes imply full portfolio coverage on this parameter. There is one company that is assessed as being in breach of international norms according to a data provider; this is discussed under the section "Sustainable Investment Definition".