ESG Questionnaire Response - Fisher Investments (FI)

ESG Policies

1. Please provide your ESG-related policies.

Fisher Investments (FI)* considers environmental, social and governance issues in our investment and portfolio construction process. Additionally, we regularly screen and tailor our investment approach for separately managed accounts depending on any particular social and/or environmental guidelines mandated by the client. Please find our ESG Policy Statement in the attachments.

* Fisher Asset Management, LLC, doing business as Fisher Investments (FI) is an investment adviser registered with the Securities and Exchange Commission. As of June 30, 2020, FI and its subsidiaries managed over $167 billion CAD. CAD asset values were calculated by using the USD-CAD exchange rate as of the dates indicated. Source: FactSet. All assets, as of June 30, 2020, in this document are preliminary and subject to final reconciliation of accounts. FI and its subsidiaries consist of four business units – Fisher Investments Institutional Group, Fisher Investments US Private Client Group, Fisher Investments Private Client Group International, and Fisher Investments 401(k) Solutions Group. The Investment Policy Committee (IPC) is responsible for all investment decisions for the firm’s strategies.

2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.

Yes. FI evaluates and integrates ESG factors at multiple stages throughout the investment process.
Qualitative analysis of political and economic drivers at the country and sector level is at the genesis of FI’s top-down investment process. We consider political and economic information potentially affecting the performance of securities as part of this analysis. Throughout the course of our top-down investment process, we research  potential ESG risks or opportunities presented by individual countries or sectors. Our analysis of global political drivers can influence security selection tied to potential political or regulatory risks companies face. Our unique investment process seeks to avoid, or significantly underweight, countries presenting an inordinate risk to our ability to generate sustainable, long-term out-performance.

Top-Down ESG Investment Process

ESG factors are among the many drivers considered by FI’s Capital Markets Analysts and FI’s IPC when developing country, sector and thematic preferences. Our process begins with a top-down approach, in which we apply capital markets technology (i.e., proprietary research tools) to the analysis of a wide range of economic, political and sentiment drivers to formulate forecasts and develop portfolio themes. The strategy attempts to capitalize on style and sector cycles as they come into and out of favor. At this stage in the investment process, FI’s Capital Markets Analysts, working with FI’s IPC, evaluate how ESG issues may affect portfolio themes.

Our emphasis in understanding the dynamics of political outcomes provides insights on how ESG issues affect equities. We monitor key social policies driving wealth creation and economic growth, including infrastructure investment, tax policy, free trade, property rights and government reform, as well as social factors. Political factors affecting these social policies are also integral to our top-down analysis (e.g., election cycles, legislative gridlock, etc.), and we maintain a keen awareness of regulatory risk. Additionally, environmental factors frequently influence our Capital Markets research. Our Analysts monitor advancing energy efficiency (especially within Industrials and Technology companies), nuclear power risks, resource extraction implications (e.g., labour strikes and resource nationalization) and litigation risk tied to environmental impact, among other factors.

FI’s IPC, with the assistance of FI’s Securities and Capital Markets Analysts determines the materiality of the ESG considerations as they pertain to countries, industries or individual securities. These ESG factors are incorporated into the sector and country weight preferences as well as individual security selection. FI’s investment strategy and positioning reflects the firm’s outlook over the next 12-18 months. Determinations on the materiality of ESG factors by FI’s IPC, as with market forecasting, are generally assessed over this same timeframe.

ESG Bottom-Up Integration

We evaluate ESG issues on a case-by-case basis, and are willing to consider the potential impact of all types of ESG concerns. In particular, we routinely evaluate a range of governance issues and off balance sheet risks as part of our stock selection analysis. These include consideration of a company’s auditors and whether their opinions are qualified or they have potential conflicts of interest, shareholder concentration, review of regulatory filings, and review of news flow from a wide range of sources for potential ESG concerns.

FI’s Securities Analysts then perform qualitative, fundamental research on prospective investments to identify securities with strategic attributes most consistent with the firm’s top-down views and with competitive advantages relative to their defined peer group. The fundamental research process involves reviewing and evaluating a range of ESG factors with FI’s IPC prior to purchasing a security with the goals of identifying securities benefitting from ESG trends and avoiding those with underappreciated risks. These factors include, but are not limited to, shareholder concentration, corporate stewardship, environmental opportunities and liabilities, and human or labor rights controversies. In situations where security level issues violate a client mandated ESG policy or present an inordinate risk to a company’s operational or financial performance, or the firm believes they present undue headline risk to share price performance, FI would choose not to invest in that company.

In addition to identifying ESG risks we also seek to identify a company’s positive ESG attributes to help select securities that will likely benefit from continuing ESG improvements as well as ongoing ESG trends.

3.a. Are you a signatory to the UNPRI?

Yes

3.b. If you are signatory to other coalitions, please list them.


Please see below for a list of international initiatives that FI (or its subsidiaries) have joined:

  • In 2014, FI became a signatory to the PRI.
  • In 2018, FI provided a response to the UK Financial Reporting Council Stewardship Code.
  • In 2018, Fisher Investments Japan Limited, a wholly-owned subsidiary of FI, is a signatory of the
  • Japanese Stewardship Code.
  • In 2019, FI joined the UN Global Compact, became a Carbon Disclosure Project signatory, became a signatory to the Climate Action 100+, and became a supporter of the Task Force on Climate-related Financial Disclosure (TCFD).
  • In 2020, FI became a member of the Emerald Circle.

3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.

Please see question 3) part b above.

4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?

Responsible Investments Committee/Research Organization:

FI has a formal Responsible Investments Committee, consisting of Institutional Group and Portfolio Management Group leadership. This committee has been formed with the intent to advance FI’s ESG and Impact capabilities and make FI a market leader in ESG implementation. The Responsible Investments Committee is comprised of members of Portfolio Management Group (Research and Investment Policy Committee members) as well as the Engagement Team and ESG Program Manager within FIIG. Together, these ESG Specialists play a central role in the application of ESG considerations in the following areas of our process: investment research, guideline implementation and portfolio compliance. The key ESG specialists also serve as a resource for clients and prospective clients.

ESG Oversight and Escalation of Key ESG Issues

As part of our research process, ESG Analysts are responsible for being informed about current and developing ESG trends, and briefing the IPC when appropriate. Moreover, the ESG Analysts works with our ESG data providers to help ensure quality and comprehensive ESG data is available for our decision-making and monitors the consistent application of ongoing ESG analysis for individual securities. The ESG Analysts also is responsible for providing training on ESG issues to all Analysts and Institutional Relationship Managers.

FI uses various databases and information vendors to aid and augment our proprietary internal ESG research, including MSCI ESG Research (including MSCI Business Involvement Screening, MSCI Norms & Controversies and MSCI Carbon Metrics), Morningstar Sustainalytics Fund Globe Ratings, Bloomberg, and FactSet to access ESG information. To aid ESG proxy voting, FI utilizes ISS (Institutional Shareholder Services, Inc.). Furthermore, we envision future collaboration with ESG aware FI clients to address specific ESG issues through proxy voting. FI also actively interacts with members of the ESG community. For example, FI employees attend numerous ESG- and SDG-related conferences, work with PRI to implement ESG best practices, and a member of the IPC sits on the Sustainable Development Goals in Active Ownership Working Group.

5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.

FI produces a number of ESG reports and can customize reporting to the client’s needs. We frequently provide clients with reporting in the desired format and frequency. Below are a few examples of ESG reporting that FI currently provides:

  • Bi-annual ESG newsletter
  • ESG Quality Score Reporting
  • Carbon Impact Report
  • Environmental Analysis
  • Engagement Examples

We can generally provide reporting on some extra-financial/ESG aspects as part of standard reporting and are pleased to customize reporting for our requirements whenever possible.


Firm level engagement and proxy voting reports are uploaded to the company website annually (link: https://institutional.fisherinvestments.com/en-us/process/esg). Additionally, we publish ongoing commentary on our website for a variety of ESG topics (link:https://institutional.fisherinvestments.com/en-us/research).

6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?

Yes. Developing and continuously improving our ESG resources and capabilities is a high priority for FI, in order to meet our client demands in implementing ESG. While the majority of our efforts are designed to be forward-looking and increase future performance, we frequently set aside time for critical evaluation of past periods, as continuous improvements of the investment process is one of FI’s core tenet’s. This is the case in times of outperformance as well as underperformance. A primary goal is to identify new factors which may impact future performance, as well as biases in our own management approach, which may be limiting returns.

FI has been managing accounts with various thresholds of environmental and social mandates for over two decades, and over that time has continuously devoted additional resources toward advancing our ESG efforts. Over the last three years we have grown our designated ESG Research staff from one professional to five, and an IPC member. Within our ESG Research Analysts two are fully dedicated to ESG research*. Additionally, we have expanded our base of ESG research and tools in order to better meet client ESG demands.

In conjunction to internal reviews, the PRI annual assessment report grants us the opportunity to determine our areas for improvement. FI’s assessment grade has improved over the last several years, which is reflective of the additional resources dedicated to firm-wide ESG efforts. On the 2020 Assessment Report, FI received A+ scores on the Strategy & Governance, and Incorporation, and an A on the Active ownership module. FI greatly values these opportunities as we are dedicated to continually improving our ESG capabilities.

Generally we would not disregard ESG issues during investment decision-making, rather ESG issues are integral part of overall stock analysis. If the IPC were to disagree on an ESG concern, there would be an iterative process of further information gathering and debate on the matter. This would include interaction with the Research Analysts and an effort to find information that supports or refutes both arguments. As the Co-CIO's of the firm, Ken Fisher and Jeffery Silk have veto power, although in practice this would be utilized extremely rarely in the investment process.

If a collective agreement or decision is not reached then we would ultimately have lower conviction on that particular theme, weighting or stock decision.

*IPC members and Research Analysts are generalists and devote their efforts to all the firm’s strategies.

Climate

7. Describe how you identify, assess, and manage climate-related risks.

FI considers both direct and transition risks and opportunities on the organization and its primary activities related to investment management. While the direct climate-related risks to our organization are limited, FI does consider such risks throughout the investment process. Within portfolios, for example, we review the impact of climate-related legislation and shifting consumer and investor preferences on country, sector, and security decisions. FI assesses the risk of climate change in the portfolio screening process, examining specific climate change sources such as toxic emissions, fossil fuel production, and fossil fuel use. Within ESG portfolios, carbon-related risks are more directly targeted by restricting various coal-fired utilities and mining companies involved in thermal coal extraction. Within Low Carbon portfolios, FI explicitly targets a carbon footprint reduction relative to a benchmark. FI continually reevaluates companies within the ESG portfolio for policy compliance; ensuring securities held in the ESG portfolio maintain socially responsible business practices.

8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.

Generally speaking, we view climate change as a longer-term market consideration beyond the timeframe that we use in the investment decision (12-18 months). Such assessments are meant to improve the probability of alpha generation and are not driven by ideological preferences.

Viewing climate-risk as a longer-term market consideration allows us the potential to create winners and losers primarily through legislative action and innovative energy efficient solutions from private enterprise. Political examples would include multi-nation agreements on carbon reduction and various countries deemphasizing the use of coal in favor of alternative and cleaner energy sources. We believe the winners moving forward will likely be companies finding innovative and sustainable solutions for efficient energy production and consumption, in turn unlocking shareholder value. Long term risks and opportunities are those mostly associated with a broader transition from a carbon-based economy. Such risks and opportunities are systematic and not within our investment horizon.

9. Describe the resilience of your investment strategy, taking into consideration different climate- related scenarios.

FI became a supporter of the Taskforce on Climate-related Financial Disclosures in late 2019 and we have conducted scenario analysis/climate risk stress testing on very limited basis to date. The firm has engaged with data providers (e.g. MSCI ESG, Sustainalytics, Institutional Shareholder Services Inc. (ISS) to assess various climate scenario/stress test offerings. We expect our capabilities to complete more formal climate scenario analysis to increase over time. We do regularly review carbon foot print data (e.g. Carbon Emissions/Carbon Intensity) as part of efforts to monitor carbon related portfolio risks.

10. Do you track the carbon footprint of portfolio holdings?

Yes

If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.

FI is able to measure the carbon footprint for individual portfolios. This amount invested in the Russell 2000 Value index is responsible for annual emissions of 276 metric tons of carbon dioxide equivalent (tCO2e), compared to 134 tCO2e for the Queen’s University US Small Cap Value account*.

We utilize MSCI ESG Carbon Portfolio Analytics to measure the carbon intensity and carbon footprint of the portfolio. The portfolio currently has a lower carbon footprint than the benchmark and has so for several years given our views on the sectors responsible for a disproportionate amount of carbon emissions. We do not, however, actively target a particular carbon footprint in non-Impact strategy portfolios.

We are able to partner with our clients and accommodate specific carbon mandates. FI considers the risk of potential climate related legislation and the risk of carbon emissions primarily by restricting various coal fired utilities and mining companies involved in thermal coal extraction. FI assesses the risk of climate change in the portfolio screening process, examining specific climate change sources such as toxic emissions, fossil fuel production, and fossil fuel use. FI continually reevaluates companies within the ESG portfolio for policy compliance, ensuring securities held in the ESG portfolio maintain socially responsible business practices.

* Source: MSCI ESG Research

11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.

FI’s most recent assessment on carbon emissions for our primary headquarters located in Camas, Washington was completed from August 2018 through July of 2019. The Energy Star benchmark report was provided through the Department of Energy and the Environmental Protection Agency’s Portfolio Manager Platform. Results showed carbon emissions annually for Building 1 was 17.3 pounds of CO2 per square foot and the building is 114,000 square feet. For Building 2, it was 9.44 pounds of CO2 per square foot annually and the building is also 114,000 square feet.

As a firm, Fisher is looking for ways to promote our green values both internally and externally to support our ESG efforts. FI’s established the Green Team in 2019, a group of volunteer employees from throughout the firm who have been tasked with answering the following opportunity statement – How can Fisher Investments improve our environmental impact? In other words, how can FI focus on the “E” in ESG, both in our company, on our campuses and amongst our employee base? The Green Team was first chartered with brainstorming potential “green ideas” big or small. The team was given about a month to research and gather as many plausible ideas as possible, and then presented them to a panel of Executive Vice Presidents. The result was four 'buckets' of ideas presented to the panel of EVPs, breaking down implementation into short, medium- and long-term stages. The Green Team pitched over twenty-five ideas in the following categories: building improvements, sustainability initiatives for campus buildings, human capital, and client and prospect meetings. Our progress on our sustainability initiatives will be reported in the second half of 2020.

Diversity

12. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?

Our culture values and supports inclusivity and diversity. We hire from all educational and professional backgrounds and from locations around the world, creating diversity of thought and experience. While our work is not done, we are proud of the progress we've made:

  • 85% of our employees report to Executive Vice Presidents (EVPs) who are women, people of color and/or identify as a member of the LGBTQ community.
  • 60% of our Senior EVPs are women.
  • 30% of our employees are women; 30% of our managers are women.

The firm’s hiring practices for all employees, including new analysts or portfolio managers, is deeply rooted in growing talent from within. The firm provides a flexible career development path, allowing for both vertical movement within departments and horizontal movement to other departments. The firm encourages its employees to rotate across multiple disciplines as they grow their careers, offering breadth of experience in a variety of roles. We believe this approach results in a flexible, dynamic and deeply skilled workforce capable of quickly adapting to change and leading our investment management and client service efforts. Ever higher levels of responsibility are continuously available within and across operational units.

Our belief is that to succeed as a firm, we must have an inclusive culture, actively developing and supporting diversity, where all feel welcome and supported. Embodying these values across our organization is crucial to our vision, culture and success. A culture that celebrates and encourages diversity will allow each employee to build a lifelong career, and will help us better the investment universe. Since October 2019, the firm's Diversity & Inclusion (D&I) Task Force has taken the following actions:

  • Established a partnership with Russell Reynolds & Associates (RRA), a leading D&I consultancy
  • Initiated our Assessment and Learning Phase
  • Completed an Employee Listening Tour across all offices
  • Completed the All-Employee Inclusion Index Survey
  • Piloted a manager training course on Inclusive Leadership
  • Conducted a 360 Leadership Assessment of our EVPs and above

Most recently, we have also amended the firm's Mission Statement ("Vision") to include the following excerpt: "To succeed, we must have an inclusive culture, actively developing and supporting diversity across the vast spectrum of human differences, creating a place of authentic belonging for all."

Moving forward on this multi-year journey, we have also begun to establish a Roadmap to guide our efforts. Our short-term efforts will focus on the following:

  • Measuring Progress: Consistent with our belief in metric-based accountability, we will establish a D&I benchmark, focused on financial services, and create metrics to evaluate our progress.
  • Training:
    • We will provide foundational training in core D&I concepts to all employees.
    • We will begin requiring D&I training as part of New Employee Orientation so all incoming employees are grounded in the same concepts.
    • We will provide all managers with training on Inclusive Leadership to enhance the way we lead our groups and teams.
    • All Executive Vice Presidents and above have already gone through individual Inclusive Leadership Assessments, conducted by RRA, and are working with them to create personal development plans.
  • Recruiting:
    • We will create a D&I page for our Careers website to broaden our appeal to candidates from all backgrounds and highlight our D&I values and programs.
    • We will pursue an expanded Diversity Recruitment Strategy to broaden the top of the recruiting funnel and expand our reach to a more diverse candidate pool.
  • Education & Celebration: We will create a firm-wide program to acknowledge and celebrate diversity and culture. It will include an educational element to broaden our collective understanding of others.
  • Communication: We will create a D&I internal intranet site so there is a central repository for resources, to share regular updates, and will also include ways to elevate questions, ideas or concerns.
  • Employee Resources: We will test creating Employee Resource Groups (also known as Affinity Groups). Due to remote work and social distancing constraints, we won’t immediately launch the groups but we will do the foundational work so we can launch once circumstances permit. We will initially test the groups below:
    • GEM (Gender Equality Matters)
    • Mosaic (Race & Ethnicity)
    • Pride (LGBTQ)
    • Able (Disabled; Differently-Abled)

Proxy Voting

13. What proportion of the time do you vote with or against management on shareholder resolutions, board appointments, and auditor appointments? What proportion of the time do you vote with or against management on ESG issues? How does this break down for climate, diversity, and remuneration issues?

FI utilizes a third-party proxy voting service, Institutional Shareholder Services Inc. (ISS) as an advisory service and to manage the proxy voting process. ISS provides a vote recommendation, helping to ensure each agenda item is evaluated according to the client’s policy guidelines, and then helps ensure the ballot shares are counted by the corporate issuer. Throughout this process, members of FI's Securities Operations team review the ballot handling and vote recommendations to help ensure the accuracy of the ballot reporting, and that the shares are being voted in line with the appropriate policy. FI reserves the right to override ISS-provided recommendations. Please find the following voting results on the requested items:

Voting on Shareholder resolutions, Board appointments, and Auditor appointments

With management: 89.14%, Against management: 9.92%.

Voting on ESG Issues

With management: 51.28%, Against management: 41.88%

Voting on Climate/Health

With management: 35.85%, Against management: 49.06%.

Voting on Diversity

No reporting on Diversity.

Voting on Remuneration Issues

With management: 83.81%, Against management: 15.53%.

14. What proportion of all independent ESG shareholder resolutions do you support?

Our independent proxy vendor ISS does not differentiate management versus shareholder resolutions; however, FI has voted with management on 51.28% of ESG resolutions.

15. What proportion of remuneration packages do you vote in favour of? In your view, is the current level of executive remuneration too high, too low, or about right? How is this view reflected in your voting record on remuneration?

FI voted with management 83.81% of the time and against management 15.53% on executive remuneration. It’s not possible to make general statements about the absolute levels (too high, too low, or about right) of packages as each remuneration package should be reviewed in the context of the individual company, relative to peer companies and with respect to the alignment of said remuneration package to creating shareholder value.

16. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?

FI has not filed or co-filed an ESG-related shareholder resolution.

17. Have you ever voted against a director for explicitly ESG-related reasons? If so, why? If not, would you consider doing so in the future?

FI currently does not track this data through our third-party proxy voting service, ISS. We generally vote for director nominees, except under the circumstances of insufficient board independence, diversity, expertise, responsiveness, accountability to shareholders.

Engagement

18. How many companies do you engage with? What proportion of your engagements focus on environmental and social issues? What are your engagement goals? Are these goals outcome/action- based (e.g. decreases in emissions or increases in number of women on the board) or means-based (reporting on emissions or number of women on the board)?

For the past 12 months ending June 30, 2020, FI initiated engagement dialogue with 86 companies. Typically, two-thirds of our engagements focus on environmental or social issues, however, FI launched an environmental engagement initiative in Q2 2020 that elevated the proportion to above 90%. FI determines on a case-by-case basis whether an outcome/action-based or means-based goal is applicable for a company being engaged.

19. What is your policy around the escalation of engagement; how and why might this happen and what is the ultimate tool you might use (e.g. voting against board re-election, etc.)?

FI engages with companies as part of its fundamental analysis and to clarify or express concerns over potential ESG issues at the firm or industry level. FI also engages with company management on proxy voting issues, particularly when ISS is in disagreement with company management.

Depending on the issue, the IPC may engage in additional meetings with company management, intervene in concert with other institutions on the issue or meet with appropriate members of a company’s board. Our experience shows stewardship concerns are usually best resolved by direct, confidential contact with company officials—whether at the board or management level. Escalating an issue beyond that point depends on the materiality of the issue, the company’s responses to past communications and whether we believe such engagement is in our clients’ best interests.

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