Vontobel Global Thematic EquitiesVoting & Engagement Report 2012

Vontobel Asset Management

Process

HEOS uses the voting research and recommen-dations of its proxy voting provider (in 2012: Glass Lewis, in 2013: ISS) and adds own research in order to recommend to its clients about how to exercise their voting rights. Vontobel‘s port-folio managers receive daily alerts of upcoming company meetings along with a voting rec-ommendation, based on standardised policies agreed by HEOS and Vontobel, and support-ing research. The managers review the voting decision and if they agree no further action is required. If they disagree, which may occa-sionally happen if the standard recommenda-tion does not match the portfolio manager‘s in depth knowledge of a company and its man-agement, the portfolio manager can change the vote directly within the online proxy voting platform. This process ensures that we execute all of our voting obligations while maximising efficient use of Vontobel‘s resources by free-ing the investment team of the administration effort and basic research required for dealing with the majority of proxy votes, but retaining the authority for portfolio managers to person-ally make a decision in the interests of our inves-tors on the issues we think are most important. Formal engagement programmes are carried out by HEOS. The company seeks a balance between direct corporate engagement, ensur-

1) European Fund and Asset Management Association (also EFAMA), “Investment Fund managers as shareholders”, Recommendation for best practice on Corporate Governance. Brussels, 5 February 2002

Overview

As signatory to the UN Principles for Responsi-ble Investment, Vontobel commits to being an active owner and to incorporate environmental, social and corporate governance (ESG) issues into ownership policies and practices. We believe this is important for the development of sustainable economies, societies and the environment, and that material ESG issues can impact the future success of a company and therefore its investment potential.

We partnered with Hermes Equity Ownership Services (HEOS) in 2011 in order to improve the quality of our voting decisions and the breadth of our engagement. EOS helps institu-tional shareowners around the world meet their

fiduciary responsibilities and become active owners of the public companies in which they invest. The selection of HEOS followed a com-prehensive internal research process evaluating the different proxy voting and engagement services available in the market to select the solution that fit closest with Vontobel’s aims and methodology.

The HEOS service covers the full range of Vontobel Sustainable and Global thematic Trends equity funds: Sustainable Global Lead-ers, Sustainable Emerging Markets Leaders, Sustainable Asia ex Japan Equity, Sustainable Swiss Equity, New Power, Clean Technology, and Future Resources. These funds were cho-

sen because they have either a clear sustain-ability focus or their thematic focus has strong links to ESG issues.

All other equity positions held by Vontobel are executed in line with the “Management Com-pany Voting Policy” of Vontobel Management S.A. This voting policy follows the Recommen-dation for Best Practice on Corporate Gov-ernance published by the European Fund and Asset Management Association1.

Further documentation on Vontobel’s funds and sustainability practices are available at: www.vontobel.com/sustainability

ing its clients’ major holdings are covered and focussing on activities which add most value to its clients’ holdings from a risk management point of view, and public policy / best practice engagement, which if effective can positively benefit all companies in the affected region or sector. Such programmes often take place over a number of years and on a variety of issues, particularly with companies in regions or sec-tors where transparency is poor. By partnering with HEOS we are able to participate in many more engagements than we could undertake internally, we benefit from the greater influ-ence that the combined shareholding of all HEOS clients has compared with our individual holding, and support engagements with com-panies that do not currently meet the stand-ards for our sustainable funds but may do so in future if they improve their performance on ESG factors. In addition, Vontobel analysts and portfolio managers are encouraged to engage infor-mally on relevant topics with the manage-ment of companies in the course of their fundamental research. Our analysts regularly contact companies in order to learn more about governance standards or environmen-tal performance and receive relevant informa-tion that is not covered in company reports.

We also participate in Hermes‘ biannual client counsels, in which we have the opportunity to discuss with and learn from other investor using the HEOS service, and engage with Hermes on the current issues of most concern and devel-opment of their engagement activities.

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50

2429

67

42

Shareholder Comms

Environmental

Social & ethical

Risk managementBusiness strategyGovernance

Remuneration

Vontobel Asset Management Voting and Engagement Report 2012

Engagement activity in 2012

Company meetings voted at world-wide

Voting decisions by region

Company engagements worldwide

Engagement issues worldwide

Voting decisions worldwide

In 2012 we voted at 298 company meetings worldwide on over 3000 resolutions. At 57% of meetings we voted with management, while at 42% we voted against management (or voted against and abstained) on at least one resolution. Of the votes with management, 8% were by exception meaning that there was an issue that raised concern according to the standard voting policy. However in certain instances, HEOS recommends a vote in favour «by exception»; that is, where they are satisfied that the management will act subsequently in a way which will rectify the issue in the short term.

36

40

76

120

23

3

Asia Pacific Australia and New ZealandEmerging & Frontier Markets EuropeNorth America UK

42%

1%

49%

8%

All forAgainst Abstained

With Mgmt by exception

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Asia Pacific Australia and NewZealand

Emerging & FrontierMarkets

Europe North America UK

All for Against Abstained With Mgmt by exception

In 2013 HEOS engaged on our behalf with 84 companies in Vontobel's portfolios, on a range of 256 issues. Engagements with companies typically involve more than one issue simulta-neously and are in addition to any discussions surrounding voting matters.

Governance issues were the biggest concern; including remuneration issues these repre-sented 43% of all engagement issues. Board structure and remuneration are the most common issues, with key outcomes sought by HEOS including separation of chair and CEO roles, simpler executive pay structures align-ing the interests of executives with long-term shareholders, and ‹one share one vote› systems.

Social and ethical issues were the next larg-est group, covering issues such as employee relations, health and safety, and supply chain issues such as child labour. These issues have particular prominence in emerging markets, and HEOS visited company facilities in Brazil, China and other parts of Asia to engage with companies on working hours, remuneration standards and provision of minimum health and safety standards.

Environmental engagements typically seek disclosure of relevant environmental indica-tors, though in 2012 the oil and gas sector was in focus as HEOS encouraged these compa-nies to manage carbon emissions and use of water more effectively, and in the wake of the Fukushima nuclear disaster, challenged utilities companies with nuclear activities to explain

and improve their disaster planning and the long-term sustainability of their current and planned nuclear plants.

28

20

1411

2

9

Asia Pacific Australia and New ZealandEmerging & Frontier Markets EuropeNorth America UK

Voting activity in 2012

Progress on engagements is measured by a series of milestones, marking events such as companies acknowledging the issue, commit-ting to making improvements, and actually implementing improvements. In 2012 HEOS made progress on about 30% of its ongoing engagements.

By region, Europe including the UK repre-sented 50% of engagements, which is about the same proportion as the previous year. The next largest group is North America. While most of the funds covered by the HEOS are global in nature, this greater focus on devel-oped markets is to be expected given both the location and historic strengths of the Hermes team, and the greater transparency and will-ingness of companies to engage with investors in these market.

Vontobel Asset Management Voting and Engagement Report 2012

Important legal notice:This document is for information purposes only and nothing contained in this document should constitute a solicitation, or offer, or recommendation, to buy or sell any investment instruments, to effect any transactions, or to conclude any legal act of any kind whatsoever. This document has been produced by Vontobel Asset Management. It is explicitly not the result of a financial analysis and therefore the «Directives on the Independence of Financial Research» of the Swiss Bankers Association is not applicable. The Vontobel Group and/or its board of directors, executive management and employees may have or have had interests or positions in, or traded or acted as market maker in relevant securities. Furthermore, such entities or persons may have or have had a relationship with or may provide or have provided corporate finance or other services to or serve or have served as directors of relevant companies. Although Vontobel Group believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this report. Neither this report nor any copy hereof may be distributed in any jurisdiction where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. In particular this report must not be distributed or handed over to US Persons and must not be distributed in the USA, Australia, Japan or the United Kingdom.

In addition to the formal engagement pro-grammes, some informal engagements between Vontobel analysts included our Tech-nology analyst contacting US company Google directly to express our concern over their vot-ing structure; and our Consumer Goods ana-lyst contacting a Chinese company directly to encourage greater transparency and disclosure on a range of ESG issues, including their envi-ronmental management system and employee relations. The company already published some product environmental data in Chinese, sug-gesting a willingness to be transparent and the possibility that it could be expanded to a corpo-rate level reporting and made more accessible to global investors.

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Europe incl. UK Asia Pacific Australia and NewZealand

Emerging & FrontierMarkets

North America

Shareholder Comms Environmental Social & ethical

Risk mgmt & business strategy Governance incl remuneration

Engagement issues by region

Case study: Petroleo Brasileiro

Sources: Vontobel Asset Management, Hermes EOS

Petroleo Brasileiro («Petrobras») was held in the Sustainable Emerging Markets Leaders portfolio in 2012. During the year HEOS intensified its engagement with the company on sustainability matters through interactions with senior executives from the health, safety and environmental performance team and members of the corporate social responsibility department. They also visited a Petrobras research centre in Brazil and met with technicians responsible for monitoring risk management systems, and scientists overseeing bio-security risks. HEOS sought assurance and commitment to higher standards from the company relating to its treatment of the environment, and health and safety, labour, and human rights standards.

Given that more than 80% of the company’s activities are in deep and ultra-deep sea drilling, robust risk management as well as appropriate oversight and accountability at board level are essential. The company was open with HEOS and HEOS sought greater disclosure of specific targets and milestones to measure progress and discussed the objectives currently in place as well as the implementation of policies across the company’s operations in Brazil and abroad. A dedicated executive sustainability committee has been created, although HEOS is seeking further clarity on who oversees and manages sustainability risks.

In addition to environmental risk management, HEOS also addressed poor financial performance, government interference and an apparent lack of respect for minority shareholders’ rights, indicated by the controversial election of directors. They emphasised to Petrobras that it is critically important that the nomination process for these seats be conducted in a manner that is seen as credible, transparent and genuinely aligned with the interests of minorities. HEOS will continue to intensify their engagement with Petrobras in 2013 with a particular focus on corporate governance, and will also press for further improvement in sustainability management.

Sonia Mancini Relationship Manager Vontobel Asset Management, Zürich+41(0) 58 283 56 07sonia.mancini@vontobel.ch

Daniel BrudererHead of Relationship Management Global Thematic EquitiesVontobel Asset Management, Zürich+41 (0)58 283 50 08daniel.bruderer@vontobel.ch

Marc BindschädlerRelationship ManagerVontobel Asset Management, Zürich+41 (0) 58 283 58 87marc.bindschaedler@vontobel.ch