BlueBay Asset Management LLP Environmental, Social and Governance (ESG) Investment Risk Policy

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1 BlueBay Asset Management LLP Environmental, Social and Governance (ESG) Investment Risk Policy INTRODUCTION This policy document outlines BlueBay Asset Management LLP s ( BlueBay ) approach to integrating Environmental, Social and Governance (ESG) factors within its investment risk management framework. It applies as standard to all investments made within pooled funds and segregated mandates 1. This policy has been approved by the BlueBay Market Risk Committee, and is formally reviewed on an annual basis. ESG investment factors Investment analysis of non-financial factors commonly referred to as Environmental, Social and Governance (ESG) factors encompasses those aspects of an issuer s operations which may materially influence its ability to meet its financial obligations in the long term. These ESG related risks (and opportunities) will vary by country, industry, as well as by characteristics specific to an issuer such as size and geographical footprint. However examples of each type of ESG risk could include the following: Environmental: climate change - stranded assets risk for oil & gas companies; Social: human rights & supply chains security of supply risk for retailers sourcing from suppliers operating unethical and illegal working conditions; Governance: transparency & integrity lack of appropriate board oversight and decision making structures which undermine investor confidence in management. Our investment philosophy BlueBay is committed to delivering attractive risk-adjusted returns for its clients over the long-term. Its investment approach to generate this is governed by a style incorporating the following investment principles: Focus on absolute returns across our funds; Strong emphasis on capital preservation; Dynamic, research driven approach; Disciplined, risk controlled environment, and Active management (both top down and bottom up inputs). BlueBay believes ESG factors can potentially have a material impact on an issuer s long-term financial performance. Given the limited upside and potentially significantly downside of fixed income investments, the focus of its ESG analysis is on understanding downside risks. Poorly managed ESG risks can lead to inefficiencies, operational disruption, litigation and reputational damage, which may ultimately impact an issuer s ability to meet their financial responsibilities. Supplementing traditional financial analysis by reviewing 1 Clients in segregated accounts may request different ESG investment criteria. The only exception in approach is that which Bluebay applies for a specific type of alternative investment product it manages the Direct Lending funds.

2 ESG related management practices and performance is therefore not only prudent but also in line with BlueBay s fiduciary duty to optimise investor returns. ESG governance, management & resourcing Oversight and management of BlueBay s ESG investment risk management process resides within the Investment Risk function. BlueBay has a dedicated ESG specialist resource who reports to the Head of Investment Risk. BlueBay Asset Management LLP Board Management Committee Market Risk Committee # Risk & Performance Head of Risk & Performance Investment Risk Head of Investment Risk Senior ESG Analyst # Committee sets internal guidelines and policies to BlueBay s investment risk framework. Members: Head of Risk & Performance (Chair), Head of Investment Risk, two Co-Chief Investment Officers BlueBay sources issuer ESG data from a number of specialist third party providers, as well as utilises other ESG data related products and services from external stakeholders to help in the ESG integration process. APPROACH Whilst BlueBay s investment process has always to some degree, taken into account ESG related risk factors in the decision making process, during 2013 it initiated efforts to systematically incorporate this. BlueBay became a signatory of the United Nation s Principles for Responsible Investments (UN PRI) during July 2013, a global voluntary initiative focused on the investment industry, whose signatories have committed to integrating ESG factors into investment processes. ESG integration BlueBay primarily employs an ESG integration strategy to its investment risk management which involves the identification & assessment of material ESG risk factors. This means not automatically excluding issuers from investment on ESG grounds; rather it is about ensuring BlueBay s investment teams are aware of, and taking informed decisions about key ESG risks. As such, ESG factors are an input into BlueBay s investment process, but they are not necessarily the key determinant in the final investment decision making process, which ultimately reflects the view of an investment s risk or return. In line with BlueBay s active management philosophy, ESG integration involves considering both: Top-down macro-level ESG analysis: analysing and evaluating trends and development at a global/regional/country level in terms of the political, legal and regulatory, environmental and social megatrends shaping the operating environment of governments and economic development, and which set the stage for corporate activities;

3 Bottom-up micro level ESG issuer analysis: at the corporate level, this involves fundamental analysis and evaluation of ESG management and performance trends and developments for a given industry. As an asset manager investing globally, BlueBay acknowledges the need to be pragmatic when assessing ESG factors, to take into account legal and cultural differences in different markets. So whilst BlueBay will consider there are some basic global ESG principles, the analysis will also be sensitive to the issuer s individual situation in terms of the local norms, laws, regulation and expectations of the market in which it operates. The scope of BlueBay s ESG integration strategy is to factor in ESG factors at three levels: Issuer level in terms of credit analysis e.g. what is BlueBay s ESG risk exposure on an individual issuer by issuer level? Portfolio level in terms of portfolio characteristics e.g. what is the ESG investment risk exposures at a fund level? and at the; Group level, in terms of oversight of ESG risks across BlueBay s portfolio strategies e.g. what is BlueBay s ESG investment risk exposure across all the investment desks? ESG exclusion screening With an emphasis on ESG integration, BlueBay does not generally seek to apply investment exclusion screens based solely on ESG factors for its pooled funds. As a minimum BlueBay will ensure it follows all applicable laws and regulations which have an ESG element. BlueBay currently applies a controversial weapons investment exclusions (covering producers of cluster munitions and anti-personnel landmines) policy to its Luxembourg and Cayman Island domiciled funds. Details on BlueBay s approach to Controversial Weapons investments is contained within the Controversial Weapons Investment Policy which can be found on the BlueBay corporate website. ESG segregated funds Clients in BlueBay s segregated accounts have the ability to create a custom ESG investment strategy if they require this. BlueBay can also apply ESG exclusion screening for such clients. ESG engagement BlueBay believes that providers of debt do have a role in engaging with issuers on matters with the potential to impact investment returns. As part of the routine investment research process, its investment teams do meet issuers (particularly with primary issuances) and are therefore able to raise questions, including on ESG related matters. Given BlueBay s approach of not automatically excluding issuers from investment based on their ESG performance, actions to mitigate such risks are raised with investments teams where appropriate. Where ESG engagement is deemed necessary, this will be prioritised using a risk-based approach. This means focusing on material ESG risks facing the issuer and their specific ESG score, as well as the size of our investments (and whether it is a long-term position). In general, the aim of any ESG engagement will be to generate additional insights into the issuer and/or to facilitate change with a specific request for change, all of which will better inform our investment decisions. However client expectations of the scale and effectiveness of such engagement should be made in recognition of the fact that as debt investors, we are not owners and as such have more limited legal mechanisms to influence issuers. Furthermore, trying to engage a non-corporate issuer such as a sovereign is potentially more challenging than influencing a company. In recognition of this BlueBay will continue to review the best ways to carry out ESG engagement to maximise impact and use of resources, including partnering and collaborating with other investors and stakeholders. Proxy voting on corporate governance (CG) & corporate responsibility (CR) Given BlueBay's focus on fixed income investing, it has limited scope to participate in proxy voting, a legal mechanism open to equity investors for communicating and influencing management at their Annual General Meetings (AGMs). However this does occur, for instance with Convertible Bond and High Yield bond investments, where our investment may take on an equity element which makes us shareowners with formal voting rights. In such cases BlueBay will ensure it makes appropriate use of its voting rights on matters of

4 corporate governance (CG) and corporate responsibility (CR). There may also be instances outside of the AGM cycle (in the case of Convertible Bonds), where corporate issuers may seek BlueBay s support to authorise certain business decisions which require a quorum of investors to be passed. Again here, BlueBay would consider ESG related matters where this is relevant. Collaboration & promoting best practice The development of BlueBay s ESG Investment Risk policy and practices has been informed by reference to current best practice with regards ESG integration. BlueBay s approach and strategy will evolve as it reviews and learns from its efforts. BlueBay is committed to working with others on promoting ESG integration and sees its membership of the UN PRI as an important mechanism for achieving this. TRANSPARENCY BlueBay is committed to providing appropriate communication and reporting of its ESG investment risk efforts to its investment teams, the Market Risk Committee, clients and other key stakeholders. Some of this will be publicly available, for instance on the BlueBay corporate website ( BlueBay formally fulfils the reporting requirements that being a UN PRI signatory entails, with a public version of the annual assessment available through the UN PRI website ( Contact details For more information about ESG investment risk management at BlueBay, please contact: ESG@Bluebayinvest.com December 2014 This document is issued in the United Kingdom (UK) by BlueBay Asset Management LLP (BlueBay), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission, the Commodities Futures Trading Commission and is a member of the National Futures Association. In the United States by BlueBay Asset Management USA LLC which is registered with the US Securities and Exchange Commission. In Japan by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Hong Kong by BlueBay Hong Kong Limited which is registered by the Securities and Futures Commission. In Australia BlueBay is exempt from the requirement to hold an Australian financial services licence under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, BlueBay is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permit BlueBay to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client, as such term is defined under applicable securities legislation. All data has been sourced by BlueBay. To the best of BlueBay s knowledge and belief this document is true and accurate at the date hereof. BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. The document is intended for professional clients and eligible counterparties (as defined by the FCA) only and should not be relied upon by any other category of customer. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only. This document is not available for distribution in any jurisdiction where such distribution would be prohibited and is not aimed at such persons in those jurisdictions. Except where agreed explicitly in writing, BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. All information provided in this document is for informational purposes only and should not be deemed as a guide to investing or a recommendation to buy the securities mentioned. BlueBay closely monitors the markets and may make changes to BlueBay s investment strategy or outlook when warranted by changing market conditions. There is no guarantee that the opinions expressed herein will be valid beyond the date of this document. No BlueBay Fund will be offered, except pursuant and subject to the offering memorandum and subscription materials (the "Offering Materials"). This document is for general information only and is not a complete description of an investment in any BlueBay Fund. If there is an inconsistency between this document and the Offering Materials for the BlueBay Fund, the provisions in the Offering Materials shall prevail. The investments discussed may fluctuate in value and investors may not get back the amount invested. You should read the Offering Materials carefully before investing in any BlueBay fund. No part of this document may be reproduced in any manner without the prior written permission of BlueBay Asset Management LLP. Copyright 2014 BlueBay, the investment manager, advisor and global distributor of the BlueBay Funds, is a wholly-owned subsidiary of Royal Bank of Canada and the BlueBay Funds may be considered to be related and/or connected issuers to Royal Bank of Canada and its other affiliates. Registered trademark of Royal Bank of Canada. RBC Global Asset Management is

5 a trademark of Royal Bank of Canada. BlueBay Asset Management LLP, registered office 77 Grosvenor Street, London W1K 3JR, partnership registered in England and Wales number OC All rights reserved.