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Sustainable investing framework
Ratings methodology applicable to the definition of sustainable characteristics
Sustainable characteristics are defined as issuers rated by MSCI, or in the absence of a rating from MSCI, by the Fidelity Sustainability Rating, as follows:
• Developed market issuers with an ESG rating from MSCI of AAA - BBB
• Non-developed market issuers with an ESG rating from MSCI of AAA - BB
• Issuers with no ESG rating assigned by MSCI will be assessed by Fidelity Sustainability Ratings and are required to have an ESG rating of A - C
Global market classifications are as set out in MSCI’s annual market classification review.
Criteria to determine which issuers demonstrate improving sustainable indicators
(applicable to the Fidelity Sustainable Family of Funds, with the exception of the Sustainable ETFs and the Sustainable Multi Asset funds)
Issuers that are not assessed as having positive sustainable characteristics for the purposes of the primary objective (minimum 70% of net assets) are eligible for inclusion, with up to 30% of net assets (save for the Sustainable ETFs and the Sustainable Multi Asset funds, which are exempted from this 30% limit), provided they are able to demonstrate that they are on an improving trajectory with respect to their sustainable characteristics. Improving sustainable indicators are issuers classified as such through the trajectory outlook of Fidelity Sustainability Ratings or issuers which in our view demonstrate the potential for improvement through the implementation and execution of a formal engagement plan. Engagement plans must include key objectives and milestones to validate the improvement being sought and must be recorded in Fidelity’s internal research platform. If the engagement has not resulted in an improvement in the sustainability characteristics of the issuer within a specified period of time, the security is subject to divestment in accordance with Fidelity’s exclusion divestment procedure.
Although Fidelity’s fundamental investment philosophy is to favour engagement over exclusion and that exclusion should be treated as a matter of last resort, we will consider the exclusion of companies from our investment universe based on specific ESG criteria. We adopt a principles-based approach to sustainability matters, and as part of this, we place issuers which we regard as unsuitable investments on our exclusion lists. When deciding on whether to exclude an issuer we are guided by international conventions, guidance from the United Nations, and other global regulations which uphold ESG principles.
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