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2023 was a turbulent year, marked by a challenging economic environment, heightened geopolitical tensions, the vertiginous rise of AI, and the deepening impacts of climate change and biodiversity loss. At Pictet Asset Management, we reaffirm our unwavering commitment to responsible investment. We firmly believe that finance has a pivotal role to play in addressing some of the world’s most pressing challenges to help achieve sustainable development.

2023 proxy voting in numbers

41%

abstained

voted against

meetings at which we did not vote

in favour of all resolutions

against / abstained or withheld at least one resolution

44%

54%

voted for

Director election Compensation Director related Capitalisation Company articles Routine / business Other

89%

companies engaged

ESG objectives

+11%

increase from 2022

+15%

increase from 2022

23%

12%

10%

16%

13%

12%

10%

Social Corporate governance Environmental Director related Compensation Director election E&S blended Other

20%

15%

Source: Pictet Asset Management, ISS, December 2023

Lead

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More case studies on our active ownership and responsible investing activities

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The bulk of the resolutions that we did not support (53 per cent) related to board directors. We recognise that for many directors seeking election or re-election, the absolute level of the vote in favour is something that they monitor. Because of this, we believe voting against directors is an effective mechanism and as such forms part of our engagement toolkit.

Tetra Tech Inc

Collaborative engagement examples

Pictet’s involvement*

About the photographer

George Steinmetz Best known for his aerial photography, George Steinmetz graduated from Stanford University with a degree in Geophysics and began his career in photography after hitchhiking through Africa for 28 months. He spent fifteen years exploring the world’s deserts, mainly while piloting a motorised paraglider. He has spent the past ten years photographing the global food supply in over 36 countries, much of that work done with professional drones.Steinmetz’s works are regularly published in international publications such as National Geographic, The New York Times, NY Times Magazine, GEO, Le Figaro, and Stern. Steinmetz has won numerous awards for photography during his career, including three prizes from World Press Photo, the Environmental Vision from Pictures of the Year, a citation from the Overseas Press Club, and was named National Geographic’s Adventurer of the Year in 2008. He also received the Lowell Thomas Travel Journalism Award for his latest book, “The Human Planet,” and recently was honored by Stanford University with the 2023 Distinguished Alumni Award from the Stanford Doerr School of Sustainability. Global Fisheries project includes pictures from the United States, China, Thailand, Australia, Bangladesh, India, Spain, Mauritania, Senegal, Peru, and the Falkland Islands, and documents how both large corporations and barefoot fisher folk have been emptying out the seas.

Responsible investment report highlights

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940

shareholder resolutions

43,550

management resolutions

Source: Pictet Asset Management, ISS, December 2021

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abstained

voted against

voted for

90%

50%

22%

14%

11%

Directors-related Compensation Routine / business Capitalisation Reorganisation / merger Anti-takeover-related Other

42%

54%

36%

15%

11%

20%

Directors-related Health / environment Routine / business Corporate governance Compensation Social proposal Human rights General economic issues Other

abstained

voted against

voted for

34%

65%

The overarching purpose of our voting is to protect and promote the rights and long-term interests of our clients as shareholders. As such, we consider it our responsibility to hold companies and their executives accountable for their decisions.

How do we define engagement?

Motorized pirogues in the harbor of Nouadhibou, Mauritania used for octopus fishing near the end of the season when the catch has declined to the point where there is no longer enough to cover the cost of fishing. The boats are already waiting for the season to open in two months, after the reproduction cycle is over. Octopus live only one year, and reproduce in May/June. Overfishing has been decreasing the catch, and this year the catch was 17% over the maximum sustainable yield, according to IMPROP fishery expert Elimane Abou Kane. There are approximately 2,500 octopus boats in Nouadhibou, of some 4,000 in the country as a whole. The pirogues have a quota to 15,000 tons, and industrial boats 10,000 tons. Nouadhibou, Mauritania. April 23, 2018

The catcher-processor ship Alaska Ocean bringing in a 65 ton load of Pacific whiting from a 500m long net that is towed across the edge of the continental shelf. Measuring 114m long, the C/P Alaska Ocean is the largest fishing/processing boat in the US, hauling in 200 tons of frozen/filleted product plus 30 tons of fish meal/day. The processing crew onboard can head, gut, fillet, and flash freeze some 30 tons of fish per hour, turning this fast growing, mild tasting fish into fish sticks for products like McDonald’s “Fillet-O-Fish” sandwiches. The ship works with two US government observers on board to ensure the catch is sustainable. The boat is fishing near the edge of the continental shelf, with net trolling 200 fathoms, some 30 miles off the coast of Oregon. Off the coast of Oregon. May 16, 2016

Shore-based set-net fishing on the beach just north of the mouth of the Naknek River at the peak of the annual sockeye salmon run in Naknek, Alaska. Shore-based fishermen set gill nets perpendicular to the shore line to catch sockeye salmon migrating up the Naknek River to spawn. The fish are loaded into bins filled with chilled water for transport to a nearby processing factory. The fishery here is tightly managed by the Alaska Fish and Game Biologists, who turn the fishing season on and off multiple times each day after a sustainable amount of fish have passed their monitoring stations up river. Naknek, Alaska July 6, 2019

Engagement tracking

Initial engagement outreach conducted

Engagement dialogue established

Company commits to address issues

Company develops a strategy to address issues

Company is at an advanced stage of implementing the strategy

Final stage

Successful completion, or disengage/no longer relevant, or failed engagement

Management resolutions

We voted for this resolution. We believe shareholders would benefit from increased disclosure and transparency about the risks associated with misinformation and disinformation, including those stemming from generative AI. This includes understanding the potential business impacts of these risks and the measures the company is taking to manage them. The resolution was supported by 21 per cent of proxies.

Microsoft

Shareholder resolutions

At Constellation Brands, we supported a shareholder resolution for additional disclosure on the company's efforts to support a circular economy for packaging.

Apple Inc

Environmental and social resolutions

the company already appears to provide adequate and sufficient disclosure

Apple Inc

Shareholder resolutions

Main reasons for rejecting certain resolutions:

the board is best placed to make the decision

the resolution is overly prescriptive

it is not clear that the request would produce meaningful additional information beyond what the company already discloses

For a meeting to be considered an engagement, there must be clear and measurable objectives. We do not consider all routine or monitoring interactions to be engagement.

“

”

Juan Salazar Senior Engagement Specialist

Case studies

An engagement is a constructive dialogue whereby we engage companies on material ESG issues to satisfy ourselves that they fully understand and address areas of concern effectively over the short, medium and long term. An engagement needs:

How do we define engagement?

Engage with 20 banks in Asia, Europe and North America to encourage them to develop or strengthen net zero transition plans

Goal

Climate change

Topic

Lead

Pictet’s involvement*

Encourage 72 companies with a high water footprint to value water as a financial risk, to act on this risk and drive change to better protect water systems

Goal

Water

Topic

Supporting

Pictet’s involvement*

Drive greater ambition and action by 100 companies to reverse nature and biodiversity loss by 2030

Goal

Biodiversity

Topic

Participant

Pictet’s involvement*

Drive greater disclosure and clarity over the approach of animal pharmaceutical companies to address the risk of AMR throughout their value chains

Goal

Anti-microbial resistance (AMR)

Topics

E, S and G corporate examples

Environmental

Albemarle Corporation

Environmental

Albemarle Corporation Country: United States Industry group: Chemicals ESG issue Climate change mitigation, water quality Engagement objective(s) 1. Expand approach to water stewardship to more operating sites 2. Enhance climate change strategy and disclosures

Background

Engagement action

Outcome(s)

Background

Engagement action

Outcome(s)

Albemarle is a specialty chemical manufacturer and the world’s largest producer of lithium. The company operates raw materials resources and production sites in Northern Chile, Jordan, Nevada (US) and Western Australia, all regions that already face or potentially face water scarcity challenges. The company has set targets to reduce the intensity of fresh water use at two of its raw materials resources – one in Chile and one in Jordan. It has invested in and piloted projects at the two sites, which we welcome. However, we believe water-related targets should be set and technologies should be deployed at more Albemarle sites across the world. For its climate change strategy, the company set aspirational targets that include a commitment to net zero by 2050, a reduction in the carbon intensity of the catalysts and bromine businesses (c. 40% of total sales) by 35% each by 2030, and growth in the lithium business (c. 60% of sales) in a carbon intensity-neutral manner through 2030. We support these aspirations and believe there is room for improvement in terms of goal setting and transparency and disclosure.

Albemarle has recently conducted both independent and internal assessments of freshwater management practices at some of its other sites in Chile and Western Australia, using standards from the Initiative for Responsible Mining Assurance (IRM A). We expect the company will soon unveil action plans to increase recycling rates and ultimately reduce freshwater consumption at those sites. High growth forecasts for the lithium market and, therefore, the company’s lithium business, means that GHG emissions in this area will grow through 2030 in absolute terms due to planned capacity growth. Against this background, the company believes it is difficult to commit/get to net zero and, therefore, is reluctant to set SBTs for the lithium business (for its catalysts and bromine businesses it has set SBTs). Instead, it has committed to grow the lithium business in a carbon-neutral manner through 2030. We will continue our dialogue with the company to explore and discuss ways in which it can set and validate SBTs for the entire business.

We started our engagement in 2022 and have since met the company several times. We welcomed the existing targets to reduce the intensity of freshwater consumption by 25% by 2030 at the two sites in Chile and Jordan, where water scarcity risks are highest. At the same time, we called for further improvements in water stewardship practices by implementing measures such as increasing water recycling rates and deploying water management technologies at more operating sites. We have also encouraged the company to validate their science-based emissions reduction targets (SBTs) with the SBTi, increase share of renewable electricity as percentage of total electricity use, and improve transparency by disclosing their energy mix as well as more disaggregated GHG emissions-intensity figures.

Social

Nestlé S.A. Country: Switzerland Industry group: Food, Beverage & Tobacco ESG issue Product quality and safety, nutrition Engagement objective(s): 1. Improve transparency and disclosure of the nutritional profile of its product portfolio 2. Set concrete, measurable targets to prioritise sales and distribution of affordable, healthy products

Governance

Toyota Motor Corp. Country: Japan Industry group: Automobiles & Components ESG issue Strategy, board functioning & composition Engagement objective(s): 1. Increase cadence of electric vehicle (EV) production and set interim targets 2. Align executive compensation with EV 3. Increase the number and enhance the skillset of independent directors 4. Appoint independent directors as chairs on key board committees

Nestlé S.A.

Social

Background

Engagement action

Outcome(s)

In the context of a global push to combat the obesity crisis and promote healthier eating, food companies must develop and implement strategies to improve the nutritional profile of their portfolios to protect and enhance their ability to generate value over the long term. Nestlé is generally considered to be at the fore front of the industry’s efforts to address nutrition-related challenges. This is supported by its performance in the Access to Nutrition Indices of 2018 and 2021, where it ranked in first place. However, areas for improvement remained in regard to transparency and disclosure, as well as ambitions to increase the proportion of sales from healthier products.

In March 2023, Nestlé became the first global food company to report on the nutritional value of its entire product portfolio by benchmarking it against the globally-recognised Health Star Rating system. It also started reporting on local portfolios in 14 countries using their respective government endorsed front-of-pack labelling systems. This, together with other announcements outlining actions to strengthen responsible marketing practices and expand micronutrient fortification opportunities, constitutes significantly positive developments. In September, the company announced a target to grow the sales of healthier products by 2030 by 50%, compared to 2022. While we generally welcome targets from the food industry to improve the healthiness of product portfolios, we had hoped Nestlé would set a more ambitious target – one expressed as a proportion of total sales and that includes only products classified as healthier using a government-backed nutrient profiling model. As one of the world’s top food companies, we believe that doing so will send a strong signal to the industry that could spur increased action to promote healthier eating. We will continue to push for this.

Increasing investor expectations around nutrition-related strategies and transparency, prompted us to join an investor collaboration on healthy diets put together by the ATNI Foundation after the release of the 2021 Index. As members of the group engaging with Nestlé, we met with the company several times between 2021 and 2023 to encourage improvements in strategy and transparency. In 2023, we continued our involvement in a collaborative effort by the Healthy Markets Coalition at ShareAction to push the company to set targets that would have the effect of increasing the sales of healthier products as a proportion of total sales. Nestlé has shown willingness to engage with investors at all times.

Background

Engagement action

Outcome(s)

Toyota Motor Corp.

Governance

Background

Engagement action

Outcome(s)

Toyota is the largest auto manufacturering the world, selling 11.2m vehicles in 2023. The company was a pioneer of hybrid propulsion but has fallen behind leaders in the industry in the transition to electric and zero-emissions vehicles. We believe that accelerating the company’s transition can re-establish technology leadership and be value creative. Such leadership, however, will depend upon robust business ethics and compliance standards. Appointing non-affiliated outsiders (with the appropriate skillset) to the board to increase its independence is critical in our view to strengthen oversight across the Toyota group of companies and hold management accountable.

We welcome the sweeping changes made to the company’s leadership team in 2023, including appointing a new CEO who pledged to accelerate the rollout of new EVs as part of his goal to reinvent Toyota as a mobility company. The company set an ambitious target for EV production (1.5m vehicles by 2026, 3.5m by 2030) and provided more clarity on the planned EV architecture as well as technological advances in solid state batteries. The share price reacted positively to the announcement. In our conversations, company representatives expressed a desire to improve communication and reduce corporate complexity to help drive a sustained business model transition. They were also open to the idea of aligning executive compensation with the new targets, pending review. In a period of transition, we believe that independent oversight is critical, particularly considering recent controversies. Following moves to reduce both cross shareholdings and strategic holdings in 2023, we look forward to further progress on improving corporate governance and oversight.

We have been engaging with the company since 2022, when we initially called for the strengthening of the EV transition strategy. In 2023, we had four interactions with representatives from Toyota, including the head of capital strategy and the general manager of the accounting division, to discuss the EV strategy, the incorporation of ESG and operational metrics in executive remuneration plans, cross shareholdings and board independence, skillset and oversight. We also encouraged the company to improve disclosure of its lobbying on climate change in light of the shareholder resolution put forward to the 2023 AGM urging the company to do so. At the AGM, we voted against the election of the new Chairman and affiliated outsiders given the lack of sufficient independence on the board. We followed this action with a letter to the company outlining our rationale, asking it to appoint non-affiliated outsiders and improve the composition of key board committees.

Background

Engagement action

Outcome(s)

Sovereign engagement

Discussions with Nigeria’s representative to the IMF about the risk of state fragility significantly increasing given inflationary and fiscal pressures, upcoming elections, and challenges of basic service provision across the country.

Met with Uruguayan government officials as they prepared the launch of the country’s first ever sustainability-linked bonds (SLB). We asked them to introduce and enhance coupon adjustment mechanisms.

As members of a working group within the Emerging Markets Investment Alliance, we wrote a letter to the Colombian government to suggest improvements in ESG-labelled bond issuance in areas such as use of proceeds, project evaluation and selection, and transparency.

Talking about issues such as education or healthcare with governments is part of our fiduciary duty - and helps us form a holistic view of the countries we invest in.

“

”

Mary-Therese Barton Head of Emerging Market Fixed Income

Read our Responsible Investment 2024 report

3,701

3,709

votable meetings

42,382

1,200

not supported

407

management resolutions

shareholder resolutions

Breakdown by sector

US & Canada

Breakdown by geography

We have seen an increase in the number of engagement objectives related to the environment mainly thanks to our efforts in the climate and biodiversity space. However the majority of engagements still focus on Governance, as it is foundational to the realisation of both the E and S.

Breakdown by sector

Breakdown by geography

Breakdown by ESG issue

* SBTi (Science-based targets initiative (SBTi) drives ambitious climate action in the private sector by enabling organizations to set science-based emissions reduction targets. Science-based targets are greenhouse gas reduction targets aligned with the quantity of global emissions that needs to be reduced in order to meet the goals of the Paris Agreement and limit global warming to 1.5˚ C. ** Managed assets under management (AUM) includes 56% of our managed AUM, mainly listed equities and corporate fixed income PAM Active and Passive and PWM Managed AUM. Excludes covered bond holdings, sovereign fixed income and advisory mandates due to lack of available methodologies for targets. Also exclude execution-only and custody-businesses, as the underlying assets are not directly managed by Pictet. Over time, we plan to include targets covering 100% of our managed assets, as methodologies and guidance from SBTi become available. Source: Pictet. The current baseline and expected future progress will differ by asset class and geography. SBTi validated

2023 voting activity

Biodiversity is a key source of risks and opportunities to our planet and to our investment portfolios, but analysing the interaction between nature and economic activities is a complex undertaking. At Pictet, our aim is to draw on scientific insights and adapt them for use in investment portfolios. In 2023, the Thematic Equities team developed a proprietary biodiversity impact measurement tool that can provide investment managers with an estimate of the species loss that a company risks causing for every dollar of revenue it generates. Click here to read about our proprietary biodiversity impact model.

234

Environmental

138

Social

261

Governance

esg issues over years

2023

633

Environmental Social Governance

2021

333

2020

272

20%

We engage with companies across the globe, with a focus on Western Europe and North America given that it is where most of the companies we invest in are domiciled. In 2023, we stepped up our engagement efforts with companies in Asia Pacific as management teams across the region are increasingly willing to have meaningful ESG discussions with investors.

For Pictet, climate change represents both an urgent challenge and an opportunity to build a more sustainable economy. Our Climate Action Plan sets out our actions to limit global warming to 1.5°C as signatories of the Net Zero Asset Managers Initiative and the SBTi*. Our commitment is that by 2040, 100% of our assets under management** will be in issuers that have themselves committed to net zero by 2050. As at the end of 2023, approximately 33 per cent of our managed assets under management** were invested with issuers with science-based 1.5°C targets, putting us on track for our end of 2025 target of 40 per cent. You can track our progress our progress here.

2021

2022

2023

Proportion invested in assets with validated 1.5°C science-based targets (%AuM)

154

121

Europe

109

Asia & Pacific

105

Latin America & Caribbean

Africa & Middle East

Total

392

352

270

40%

60%

100%

2021 baseline

2025

2030

2040

Source: Sustainalytics , Pictet Asset Management, 31.12.2023

Pictet Group’s target for listed equity and fixed income

When the companies we invest in lack a robust plan to transition to sustainable operating models, we use our voting rights and seek to engage with company management to hasten the adoption of more sustainable practices.

“

”

Eric Borremans Head of ESG

15%

14%

10%

Healthcare Industrials Consumer staples Consumer discretionary Materials Utilities Financials Information technology Energy Communication services Real estate

1 Part of this publication may contain proprietary information from third-party data providers (Sustainalytics, ISS) that may not be reproduced, used, disseminated, modified nor published in any manner without their written consent. Nothing contained in this publication shall be construed as to make a representation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios. The information is provided “as is" and, therefore Sustainalytics assumes no responsibility for errors or omissions. Sustainalytics cannot be held liable for damage arising from the use of this publication or information contained herein in any manner whatsoever. Disclaimer This marketing material is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a specific security is not a recommendation to buy or sell that security. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIFID, nor does it constitute on the part of Pictet Asset Management an offer to buy or sell any investments, or to provide financial services, neither an investment recommendation. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management (Europe) SA and may not be reproduced or distributed, either in part or in full, without their prior authorisation. Pictet AM has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document except that it holds the rights to use any entity of the Pictet group trademarks. For illustrative purposes only. Issued in May 2024 © 2024 Pictet

Marketing material

Opportunities

A clear objective

Improvers

A time horizon

Leaders

At least one investment team involved

Leaders

An ability to influence the company

2023 proxy voting in numbers

Our commitment to climate change and biodiversity

Engagement definition and case studies

2023 engagement in numbers

2023 proxy voting in numbers

Our commitment to climate change and biodiversity

Engagement definition and case studies

2023 engagement in numbers

2023 proxy voting in numbers

Our commitment to climate change and biodiversity

Engagement definition and case studies

2023 engagement in numbers

2023 proxy voting in numbers

Our commitment to climate change and biodiversity

Engagement definition and case studies

2023 engagement in numbers

Click here for highlights

* Our involvement can be as participating investors, or as lead or supporting investors where these specific roles are required by the initiative. Source: Pictet Asset Management, December 2023

In 2023, we voted on 307 management or shareholder resolutions related to the environment and supported 64 per cent of them, while we supported 82 per cent of resolutions related to social issues. Here are examples around the topic of biodiversity:

At Procter & Gamble, we voted against the election of three directors due to the board’s insufficient actions to adopt adequate no-deforestation commitments.

2022

552

Our commitment to climate change and biodiversity

2023 proxy voting in numbers

Our commitment to climate change and biodiversity

Engagement definition and case studies

2023 engagement in numbers

Harnessing data to build a biodiversity impact model

Pictet Group’s target for listed equity and fixed income

2023 engagement in numbers

At Constellation Brands, we supported a shareholder resolution for additional disclosure on the company's efforts to support a circular economy for packaging.

How active ownership fits into our broader investment strategy

Source: P&I ESG Guide https://www.pionline.com/ESG-guide