This is carried out principally by matching the performance of the Index, which is made up of companies that have the highest environmental, social and governance (ESG) (1) performance in each sector of the wider MSCI Emerging Markets Net Return Index.

The fund’s performance target is to deliver the performance, after the deduction of charges, of the MSCI Emerging Markets ex China A GBP Net Return Index (the “Index”) over rolling 3-year periods.

The fund will seek to achieve carbon intensity of at least 30% lower than that of the Index.

The fund uses an optimised portfolio approach aimed at maximising return while controlling risk. This means that, while the fund aims largely to replicate the  composition of the Index, the manager may decide not to hold all constituents of the Index, particularly if they have poor liquidity (where the money invested is not easily accessible), or if they are expensive to trade.

The manager may also choose not to hold constituents in the exact benchmark weights of the Index.

The fund is permitted to invest in shares that were once held in the index, but have since been replaced. The fund may also invest up to 10% in other funds, known as collective investment schemes, (including exchange-traded funds (3) and funds managed by Royal London Unit Trust Managers Limited or another Royal London Group company) in challenging market conditions to gain particular market or sector exposures.

In addition, if the fund’s  manager believes it is in the best interests of the fund, they may also obtain limited indirect exposure to emerging markets by investing in American Depositary Receipts (4), American Depository Shares (5), Global Depositary Receipts and Global Depositary Shares, which are listed or traded on stock exchanges and regulated markets outside of emerging markets. The fund may also obtain exposure to emerging markets by investing in Participatory Notes. (6) 

A limited amount of the fund’s assets may also be invested in other transferable securities (7) (including government and public securities) and money-market instruments (8). 

Investments that derive their value from another closely related underlying  investment (known as derivatives) are also permitted. These will be used for efficient portfolio management purposes (EPM) (9) only.

A small portion of assets may be held in cash for EPM purposes and to manage the flow of investors’ money in and out of the fund.

When tracking the Index, the fund’s manager allows for an anticipated level of tracking error, meaning the return of the fund may be above or below the returns achieved by the Index.

Assuming normal market conditions, the tracking error for this fund is typically expected to be no more than +/- 1.0% to 1.5% before fees are paid.

There are times when this tracking error could be exceeded and there are several possible reasons for this:

• The cost of changing holdings or reinvesting dividends
• Portfolio weightings not exactly matching the Index
• The fund valuing its shares at a different time to the Index
• Small amounts of cash being invested in components of the Index
• The effect of efficient portfolio management
• The effects of illiquid Index components

The fund will have a similar number of holdings to the Index, but this may vary over time.

The Index provides coverage of companies in emerging markets which have high environmental, social and governance (ESG) scores relative to their sector peers.

The Index provider reviews the Index composition annually and rebalances quarterly with the objective of reflecting changes in the underlying markets. Further information on the Index is available at www.msci.com.

Information on the constituents and their weightings in the Index can be found at www.msci.com.

The fund is actively managed,  meaning that the Investment Manager will use their expertise to select investments to meet the investment objective.

The fund’s assets are systematically invested to deliver the investment objective while controlling risk relative to the Index. Systematic investment describes the use of relevant data and models to construct a portfolio that aligns to the fund’s specific risk profile, investment parameters and objective.

The Investment Manager’s approach to systematic investment is further described in the ESG Factors section in the investment strategy below.

In actively managing the fund, the Investment Manager will take different positions relative to the Index which will generate a different return profile. This is known as active risk (the “Active Risk”). Active Risk is measured as the difference between the fund’s return and the Index over a certain time period.

The Active Risk in relation to the Index is not  expected to exceed 1% per annum. Due to the Active Risk constraint of the fund, outperformance of the Index may be limited.

The fund may also invest up to 10% of its assets in other funds, known as collective investment schemes (including exchange-traded funds, cash funds and funds managed by Royal London Unit Trust Managers Limited or another Royal London  Group company), to gain particular market or sector exposures.

A limited amount of the fund’s assets may be held in other transferable securities, including government and public securities, and deposits.

The fund may only use derivatives for EPM purposes which may result in small, indirect exposures to  securities that may not align with the ESG characteristics of securities held directly by the fund.

A portion of the fund’s assets may be held in cash for EPM purposes, as collateral for Futures or to manage the flow of investors’ money in and out of the fund. This will typically be less than 10%.

The performance of each share class may differ depending upon the level of share class charges. Investors should consider the charges on their share class when considering how the fund has performed.

1. an improved Weighted Average Carbon Intensity (“WACI”) relative to the Index; and/or
2. reduced exposure to companies involved with social controversies, human rights violations, tobacco related business, controversial weapons or poor corporate governance practices.

“Carbon Intensity” is defined as Scope 1 & 2  emissions* (tonnes) per $M revenue using the most recently reported total scope 1 & 2 emissions from public company data. Where company data is not reported, we will use estimated carbon emissions data based on third party data sources and the Investment Manager’s own internal analysis.

The Investment Manager does not systematically incorporate Scope 3 emissions into Carbon Intensity due to the lack of consistently reliable data for calculating Scope 3 emissions. A limitation of not using Scope 3 emissions is that the reported Carbon Intensity is not reflective of the carbon intensity of the  companies within the fund along the full value chain. Instead, it reflects the operational carbon emissions of invested companies.

Stock-specific and sector-specific under- and over-weight positions will remain within the fund’s overall Active Risk parameters. Stock positions will typically be between -0.25% and +0.25% of the Index weighting and sector positions will typically be between -0.20% and +0.20% of the Index weighting.

Due to the Active Risk constraint of the fund, the fund will have exposure to individual holdings with a higher carbon intensity.

In selecting and re-weighting assets for the fund the Investment Manager will consider environmental, social and governance factors (“ESG Factors”) (as described below).

ESG Factors

The Investment Manager will seek to decrease the fund’s exposure to (tilt away from), relative to the Index, companies that:

i. generate more than 10% of their revenue from:

a. any activity relating to thermal coal;

b. any activity relating to oil or tar sands;

c. the production, distribution or retail of tobacco products; and

d. the manufacture of nuclear weapons or associated products;

ii. violate international human rights standards, such as the ten principles in the UN Global Compact; 

iii. are exposed to significant social

controversies; or

iv. have poor corporate governance practices, based on historical voting results and engagement.

The Investment Manager will seek to increase the fund’s exposure to (tilt towards) companies that demonstrate the potential to reduce Carbon Intensity. The Investment Manager is a signatory to the Stewardship Code 2020** and will engage with companies on their environmental impacts and any positive or negative perceptions or outcomes of company engagement will be reflected in the fund’s holdings, as will other environmental, social or governance-oriented proprietary insights available to, or derived by, the Investment Manager.

The ESG Factors are calculated using a combination of external sources, such as company accounts or data providers like MSCI, and internal sources, such as the Responsible Investment team of the Investment Manager. The internal sources are mainly used for the governance factor, but they may also cover other ESG aspects as the capacity of the team increases. The fund also follows the company-wide policies of the Investment Manager in areas such as voting policies for company meetings, or the exclusion of cluster munitions.

The Investment Manager will review assets held by the fund on at least an annual basis. Where a company is identified as  on-compliant with the ESG Factors the Investment Manager will follow its escalation process. To express its view, the Investment Manager can lower exposure to that company so that is 0.25% under the Index weighting. If the Investment Manager decides to disinvest, it will occur at the first reasonable opportunity to do so (taking into account non- sustainability-related criteria, such as position size and liquidity, as part of their portfolio management) and no longer than six months after the assessment (the “Escalation Disinvestment Process”).

We provide investors with a monthly factsheet available on our website which provides the carbon reduction target in addition to other ESG metrics.

*The Green House Gas Protocol Corporate Accounting and Reporting Standard is a widely used framework that helps organizations measure and manage their greenhouse gas (GHG) emissions. It categorizes emissions into three scopes: direct emissions from owned or controlled sources (Scope 1), indirect emissions from purchased energy (Scope 2), and all other indirect emissions in the value chain (Scope 3). This standard provides a consistent way for companies to report their GHG emissions and helps them identify opportunities to reduce their environmental impact.

**The Stewardship Code 2020 is a voluntary code administered by the UK’s Financial Reporting Council, setting high stewardship standards and annual reporting requirements for asset owners, asset managers and service providers in the UK.

Funds in the IA Global Emerging Markets sector must invest 80% or more of their assets in shares from emerging market countries as defined by the relevant FTSE or MSCI Emerging Markets and Frontier indices, which closely follows the Index the fund tracks. If the ACD believes it is in the best interests of the fund, it will be removed from the sector.

Also see existing benchmark disclosures within the rows titled “Investment objective” and Investment Policy” above.

In addition to the Index, which the fund aims largely to replicate, the IA Emerging Market sector is considered an appropriate benchmark for performance comparison.

Funds in the IA Emerging Market sector must invest 80% or more of their assets in shares from emerging market countries as defined by the relevant FTSE or MSCI Emerging Markets and Frontier indices, which closely follows the Index the fund tracks. If the ACD believes it is in the best interests of the fund, it will be removed from the sector.