Keystone Positive

Change Investment
Trust Positive
Conversations
2022

Investment managers
Risk Factors
The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular
investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be
placed on them when making investment decisions.
This communication was produced and approved in April 2023 and has not been updated subsequently. It represents
views held at the time of writing and may not reflect current thinking.
This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to
the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.
The Trust invests in companies whose products or behaviour make a positive impact on society and/or the environment.
This means the Trust will not invest in certain sectors and companies and the universe of investments available to
the Trust will be more limited than other funds that do not apply such criteria. The Trust therefore may have different
returns than a fund which has no such restrictions.
The Trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment
(and any income it may pay) to go down or up. The Trust invests in emerging markets where difficulties in dealing,
settlement and custody could arise, resulting in a negative impact on the value of your investment.
The Trust’s risk could be increased by its investment in private companies. These assets may be more difficult to buy
or sell, so changes in their prices may be greater.
Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The investment
trusts managed by Baillie Gifford & Co Limited are listed UK companies. The Keystone Positive Change Investment
Trust is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority.
For a Key Information Document for the Keystone Positive Change Investment Trust, please visit our website at
[Link]

Potential for Profit and Loss

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CO1498366 Keystone Positive Conversations [Link]

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Contents 01

Contents
Welcome How we think about E – Environment
business practices

03 04 06

S – Social G – Governance Engaging for Positive

Change – Company
Conversations

16 20 26

Proxy voting

50
02
Welcome 03

Welcome
Welcome to Positive Conversations, our Environmental, Social, and Governance (ESG) and
Engagement report.
Keystone Positive Change Investment Trust’s Positive Conversations is an accompaniment to
the annual Impact Report. The Impact Report focuses on the impact of the products and services
of the companies in the portfolio. In contrast, Positive Conversations focuses on the business
practices of these companies, essentially how they operate. It also details our engagement, or
positive conversations, with management teams as we seek to support and influence companies
owned within the portfolio over the long term.
Please see below for a snapshot of the areas covered in the report.

Environment
— Positive Change’s carbon footprint and the highest contributors to its emissions
— Baillie Gifford’s Net Zero Asset Managers (NZAM) commitments and the underlying progress
of each company towards net zero alignment
— Summary of our climate related risks and opportunities
— Our efforts to understand the portfolio’s exposure to biodiversity loss
— Our participation in the Taskforce on Nature-related Financial Disclosures (TNFD) pilot

Social
— Two case studies to illustrate our outcomes-based approach to engaging with management
teams on social issues during 2022:
— Nu and financial inclusion in Brazil
— Deere and the ‘right-to-repair’ debate

Governance
— Our approach to governance from pre-buy analysis to portfolio monitoring and proxy voting,
including an example from Moderna’s AGM and a carefully considered shareholder proposal
filed by Oxfam

Engagement and Voting

— Company Conversations – an overview of reasons for engagement with detailed examples
— An overview of all engagements and voting over the 12 months to the end of December 2022

We hope you find this report an interesting reflection on our ongoing conversations.
04 How we think about
business practices

How we think about

business practices
When assessing the impact of the companies we invest in, we look at their business practices as part of our impact analysis.
Responsible business practices are fundamental to delivering sustainable long-term growth and addressing global challenges.
As with all parts of our process, our understanding of a company’s business practices is based on bottom-up fundamental
research and covers the company’s entire value chain. It considers the following areas.

Environment

— What contribution does the company make to the wider environment?

— Is the company committed to reducing its environmental footprint and intensity?
— Is it ambitious with its targets and commitments?
— Are its emissions aligned with a 1.5°C warming trajectory?
— How does the company impact and depend upon nature?

Social

— What societal contribution does the company make through its interaction with stakeholders, including employees,
customers and suppliers?
— Are employees respected and treated fairly, and is it a good workplace?
— Will customers share in the success of the company?
— How is the company’s supply chain managed and vetted for responsible social and environmental practices?
— We also look at the broader contributions to society by analysing approaches to issues such as paying taxes, human rights,
diversity and inclusion.

Governance

— How do governance structures support the company’s responsible, long-term sustainable growth through independent
oversight, incentives and shareholder alignment?
— Does the board composition, experience and diversity support long-term growth?

What is good practice?

What constitutes good practice is subjective and varies by company. For example, while high insider ownership and dual-class
share structures are commonly seen as harmful governance practices, they can be beneficial in maintaining focus on a long-term
vision in the right circumstances. We also need to set different expectations for private companies which operate in very dynamic
and resource constrained environments.
Companies will not always perform well across all value chain components: there are significant differences in market practice
between geographies, industries and levels of company maturity. However, our constructive engagement and sharing of best
practice help companies develop further.
While there may be variation at a detailed level, in general, exceptional companies perform well as individual organisations and
can drive industry-wide improvements, constantly raising the bar on what is considered best practice.
 05

What is our role?

As long-term investors, we aim to be supportive shareholders of exceptional companies by helping management teams achieve
their objectives over meaningful periods. However, an exceptional company is not a perfect company, and our role is crucial
in helping steer companies to make good decisions over the long term. There are times when we need to provide constructive
challenge to the companies in which we invest; we firmly believe that challenge is most likely to be successful when positioned
within the context of a long-term and supportive shareholding. We also believe a positive and proactive approach to ESG issues
can be a competitive advantage. Good governance can support better decision-making; good social performance can create a
more productive workforce, and good community relations can secure the social license to operate. Social performance and good
community relations can provide resilience in bad times, while good environmental performance can lower operating costs and
secure long-term access to natural resources.

The portfolio
The diagram below illustrates the relative performance of companies within the portfolio based on our assessment of their
business practices. While this is a static representation, the reality is much more fluid – our understanding of business practices
changes over time as we engage with companies. As governance structures evolve, transparency increases, incidents occur, and
performance against key metrics develop. The size of the circles represents how many companies are in it.

+
Business Practices

ASML, Chr. Hansen,

Novozymes, Ørsted

Deere, Discovery,
FDM, Illumina,
Shopify, TSMC

Alnylam, Coursera, Ecolab,

NIBE, Northvolt*, Peloton,
Sartorius, Xylem

10x Genomics, AbCellera,

Bank Rakyat, Climeworks*,
Duolingo, HDFC, MercadoLibre,
Moderna, Nu, PsiQuantum*,
Remitly, Safaricom, Spiber*,
Umicore

Autodesk, Dexcom, Joby Aviation,

Teladoc, Tesla

M3
-
* Private Companies.
06 E – Environment

E – Environment
A focus on carbon
“We are in the fight of our lives. And we are losing. Greenhouse gas emissions
keep growing. Global temperatures keep rising… We are on a highway to climate
hell with our foot still on the accelerator.”

These are the words António Guterres, Secretary-General of the UN, delivered in a powerful speech to
delegates at the 27th UN Climate Change Conference of the Parties (COP27) in Sharm El-Sheikh,
Egypt in 2022.
Held in a year which was wrecked by extreme weather events, supporting vulnerable countries as they try to
adapt to climate change became so central to the negotiations that the conference was seen by many to signal
a shift away from mitigation and towards adaptation.
While funding for loss and damage is essential, the need to decarbonise is becoming ever more pressing.
As investors, we need to accelerate our efforts on this front and encourage portfolio holdings to do the same.
Borrowing once again from Mr Guterres’ impassioned plea to the international community;

“The global climate fight will be won or lost in this crucial decade – on our
watch. One thing is certain: those that give up are sure to lose. So, let’s fight
together – and let’s win.”
 07

Portfolio carbon footprint: Scope 1 and 2

In the figures below, we represent the carbon footprint of the portfolio. This only includes direct operational emissions, otherwise
known as Scope 1 and 2 emissions, which arise mainly from burning fuel and using electricity.
As with previous years, we report our emissions against the MSCI ACWI Index, which is the index for our investment performance,
and the MSCI ACWI Climate Paris-Aligned Index, which is a more accurate reflection of where emissions need to be to meet
the Paris Agreement. This index starts from a baseline of emissions 50 per cent lower than its parent index. It then decarbonises
approximately 10 per cent year-on-year to align with the trajectory of a 1.5°C climate scenario.
We do not aim to beat the Paris-Aligned Index since doing so risks becoming an empty numerical target without considering the
context of the companies we hold. However, by comparing the portfolio’s footprint to this additional index, we gain a much better
understanding of where the carbon footprint is in relation to where it needs to be to meet the ambitions of the Paris Agreement
and avoid the worst impacts of climate change.
Both the Keystone Positive Change Investment Trust portfolio’s Weighted Average Carbon Intensity (WACI) and carbon footprint
are below that of the Paris-Aligned Index. The portfolio’s WACI is notably lower than in 2021 due to several factors. The most
important of which is TSMC’s large revenue growth (WACI is calculated by dividing tCO2e by revenue), and a lower estimation
of Tesla’s carbon intensity using company reported data rather than estimated data. As of at 31 December 2022, the total financed
emissions of the portfolio are estimated to be 1,570.14tCO2e.

Carbon footprint (financed emissions) Weighted Average Carbon Intensity

tCO2e/£m invested tCO2e/£m revenue

Keystone Positive Change Investment Trust 9.72 49.73

MSCI ACWI Index 77.84 204.21

MSCI ACWI Climate Paris-Aligned Index 13.22 59.19

Source: Baillie Gifford and MSCI. As at 31 December 2022. Footprint excludes AbCellera Biologics, Inc., Abiomed CVR Line, Climeworks AG Non-Voting
Shares, Climeworks AG Series F Preferred, FDM Group (Holdings) plc, Joby Aviation, Inc., Northvolt AB Ordinary Series A, Northvolt AB Preference D1,
Northvolt AB Preference E2, Northvolt AB Promissory Note, Nu Holdings Ltd. Class A, PsiQuantum Series D Preferred, Spiber, Inc.

Highest contributors to emissions

Conducting a carbon footprint allows us to understand the companies for which carbon emissions are most material in the
context of the portfolio as at 31 December 2022, reflecting both emissions and holding size. The figures below show the five
most significant contributors to the portfolio’s carbon footprint.

36.6% 18.6% 10.0% 6.3% 5.3% 23.2%

Umicore Ørsted TSMC Moderna Deere & Co Other

In 2022, Umicore and Deere received validation for their emission reduction targets by the industry leading Science Based
Targets Initiative, and Moderna committed to being net zero by 2030 in Scopes 1 and 2, and to setting science-based targets
for its Scope 3 emissions (definition of scope 3 on page 08). This means that all of the portfolio’s highest emitters, apart from
TSMC, have committed to targets that are consistent with what’s required to keep global warming to 1.5°C.
This year, we engaged with TSMC on various issues, including climate change and its goal to be net zero by 2050. The company
faces a great deal of complexity in achieving its sustainability ambitions. This includes local competition for water, sourcing high-
risk minerals, and being based in Taiwan, where the technical potential for renewables is very low compared to demand. Given that
we believe requirements from customers for greener semiconductors will only increase in the coming years, we emphasised our
support for TSMC’s efforts to meet its net zero target and to push for higher standards in materials sourcing and carbon offsetting.
08 E – Environment

Scope 3
In most sectors, the largest sources of a company’s emissions lie upstream and downstream of its core operations, for example,
producing the raw materials to make a product. This makes it vitally important to reduce these emissions, known as Scope 3
emissions, but significantly more challenging to measure.
Below is the portfolio’s footprint, including the Scope 3 emissions of the four holdings (Chr. Hansen, Novozymes, Ecolab and
Umicore) from certain material sectors, in accordance with guidance from the Portfolio Carbon Accounting Framework (PCAF).
Scope 3 data has been estimated by our data provider and includes all relevant Scope 3 categories covered by the Greenhouse Gas
(GHG) Protocol.

Carbon footprint (financed emissions) Weighted Average Carbon Intensity

tCO2e/£m invested tCO2e/£m revenue

Keystone Positive Change Investment Trust 143.35 193.23

MSCI ACWI Index 335.93 654.69

MSCI ACWI Climate Paris-Aligned Index 25.77 113.50

Source: Baillie Gifford and MSCI. As at 31 December 2022. Footprint excludes AbCellera Biologics, Inc., Abiomed CVR Line, Climeworks, FDM, Joby
Aviation, Inc., Northvolt, Nu Holdings, PsiQuantum, Spiber as the MSCI does not cover them.

The portfolio’s footprint is larger than that of the Paris-Aligned Index due to higher exposure to PCAF-defined material companies –
11.3 per cent in the Positive Change Portfolio compared to 3.4 per cent in the Paris-Aligned Index. Each of the four companies
considered material have set science-based targets to reduce their Scope 3 emissions, in addition to providing products that enable
their customers to reduce their Scope 1, 2 or 3 emissions.
 09

Net Zero Asset Managers initiative

In November 2021, to formalise our commitment to supporting a net zero aligned economy, Baillie Gifford joined the global Net
Zero Asset Managers (NZAM) initiative. The Keystone Positive Change Investment Trust has set out its commitment to net zero
through a series of expectations related to the performance of each holding, rather than the emissions of the portfolio as a whole,
with progress towards net zero-alignment being measured by the underlying alignment of the investee companies themselves.
Our expectations are primarily focused on the next five years as we feel strongly that action on climate change cannot wait until
2050 or even 2030. We set out our key expectations below and our progress to date. At this time we have omitted companies
that were private in 2022 from Baillie Gifford’s NZAM commitments because they are at such an early stage of growth that
disclosure is limited and the emissions of the companies are likely to be insignificant when compared to the larger companies in
the [Link] at 31 December 2022, 5% of the portfolio was held in private companies.
More information on our commitment can be found on our website.
Specific commitments of the portfolio within this framework include:
(i) All holdings are being actively assessed and prioritised for engagement for alignment on an ongoing basis
(ii) 90% of holdings will demonstrate robust strategic alignment with appropriate 1.5°C/net zero pathways by 2030.
All holdings will be so-aligned by 2040. New buys will have an extra two years to meet this commitment.
Also, we have the following expectations for our listed companies over the next five years:

Status Target

By the end of 2023 (or within two years of entering the portfolio), we expect
2023
90% (by number) of the portfolio to be reporting their Scope 1 and 2 emissions
76% 90%

By the end of 2024 (or within three years of entering the portfolio), we expect
2024
75% (by number) of the portfolio to be reporting material Scope 3 emissions
71% 75%

By the end of 2026 we expect 90% of companies to be reporting material

2026
Scope 3 emissions
71% 90%

By the end of 2026 (or within five years of entering the portfolio), we expect
2026
75% (by number) of the portfolio to have appropriate net zero aligned targets
32% 75%

32 per cent of holdings have validated near-term

Science Based Targets initiative (SBTi) targets
10 E – Environment

The following table outlines the progress of each listed company in the portfolio towards net zero alignment:

Company Scope 1 and 2 Scope 3 Near-term targets Scope 1, 2 and 3

reporting reporting validated by SBTi net zero date
10X Genomics

AbCellera

Alnylam Yes Yes

ASML Yes Yes Yes 2040

Autodesk Yes Yes Yes 2021

Bank Rakyat Yes Yes

Chr. Hansen Yes Yes Yes 2050

Coursera Inc

Deere Yes Yes Yes

Dexcom

Discovery Yes Yes 2050

Duolingo

Ecolab Yes Yes Yes 2050

FDM Yes Yes Yes 2050

HDFC Yes Yes

Illumina Yes Yes Yes 2050

Joby Aviation

M3 Yes

MercadoLibre Yes Yes Committed

Moderna Yes Committed

NIBE Yes Yes

Novozymes Yes Yes Yes 2050

Nu Holdings Yes Yes

Ørsted Yes Yes Yes 2040

Peloton Interactive Yes Yes

Remitly

Safaricom Yes Yes Yes 2050

Sartorius Yes Yes

Shopify Yes Yes

Teladoc

Tesla Yes Yes Committed

TSMC Yes Yes 2050

Umicore Yes Yes Yes

Xylem Yes Yes Committed 2050

As at 1 February 2023.
 11

Climate-related Risks and Opportunities

Global efforts to address the emissions responsible for climate change and its physical impacts pose potential
‘transitional’ and ‘physical’ risks and opportunities for every portfolio company. Transitional risks and
opportunities arise from the shift towards a zero-carbon world and can come from changes in consumer demand
or legislation. Physical risks and opportunities stem from the physical impacts of a changing climate, such as
rising sea levels or extreme weather events.
The managers of Keystone Positive Change Investment Trust are compiling a report outlining our approach
to addressing climate-related risks and opportunities through our investment process. We will produce this
report, due to be available by June, in line with Taskforce on Climate-related Financial Disclosures (TCFD)
recommendations. Below is a summary of Positive Change’s governance of climate-related risks and
opportunities and what we believe the near-term implications to be.

Our governance of climate-related risks and opportunities

Responsibility for identifying and assessing climate-related risks and opportunities is shared across the Keystone
Positive Change Investment Trust’s managers, including with our dedicated impact analysts. The Trust’s managers
are also supported by Baillie Gifford’s central climate team. During our bottom-up company analysis, the Trust’s
managers assess climate-related risks and opportunities as they relate to the investment and impact case.
Oversight of this process sits with the Trust’s managers, consisting of both investment managers and senior impact
analysts. They are responsible for making investment and portfolio management decisions. Baillie Gifford’s
Investment Risk and Compliance functions provide additional oversight. You can find further detail about Baillie
Gifford’s firm-wide governance of climate related risks and opportunities in its TCFD-aligned Climate Report.

Implications of climate change for our portfolio

Over the medium term (3–10 years), we think the impact of an orderly vs a disorderly transition will diverge.
Under an orderly transition, we expect significant opportunities for companies providing climate solutions and
for those that can reduce their emissions substantially this decade. However, under a more disorderly transition,
we expect these opportunities to be more muted as regional diversity in climate policy introduces additional
complexity. Smaller, regional companies will face different challenges from those seeking to operate globally.
Some may be able to continue to earn returns from high-emitting activities for longer. Others will need to
accelerate to low-carbon operations.
Over this timeframe, we also expect the physical impacts of climate change to become more systemic, albeit
with slight variance between the scenarios until the 2030s. The geographical and sectoral diversity of holdings
across the portfolio may provide some resilience to regional climate impacts. However, the portfolio holds some
businesses with higher levels of potentially significant geographic concentration in regions with low adaptive
capacity (such as HDFC in India, Safaricom in Kenya and Bank Rakyat in Indonesia) and others reliant on
complex international supply chains (such as TSMC). Additionally, there are several holdings (such as Deere,
Novozymes, Chr. Hansen and Spiber) with exposure to the agricultural industry. Given this industry’s direct
dependence on stable ecosystems and weather patterns, its exposure to physical climate risks over the
next 10 years will likely be more significant than our other holdings.
The portfolio is also exposed to opportunities, mainly through those holdings providing technologies that enable
societies to adapt to the physical impacts of climate change, such as the precision agricultural technology of
Deere, the water efficiency technology of Xylem and the enzyme technologies of Novozymes. Our analysis
has concluded that by weight, just over a quarter (Climeworks, Deere, Ecolab, Joby Aviation, NIBE, Northvolt,
Novozymes, Ørsted, Spiber, Tesla, Umicore) of the portfolio is made up of companies directly contributing
towards climate change mitigation through their products and services.
12 E – Environment

Biodiversity Human activity has eroded the living

Biodiversity refers to the enormous variability and variety of life world at such a rate to have tipped
on Earth. It encapsulates every species and ecosystem on our us into the sixth mass extinction
planet. This intricate web of life underpins our very existence. event in the Earth’s history.
It freely supplies all the services we need, from oxygen and food
to medicine and clean water, while protecting us from extreme
weather and regulating our climate.
Our planet’s biodiversity is now facing a cataclysmic collapse.
Human activity has eroded the living world at such a rate
to have tipped us into the sixth mass extinction event in the
Our Approach
Earth’s history. Sir David Attenborough stated that this “would Net zero emissions technologies and development
irreversibly reduce the quality of life of everyone who lives pathways do not always equate to being nature-
through it, and of the generations that follow... humankind, positive. As impact investors, the onus is on us
for as long as it continues to exist on this Earth, might be living to integrate biodiversity into our research and
on a permanently poorer planet1.” engagement. Our influence is two-fold: we can engage
Awareness of the issue and attempts to tackle it have progressed with our portfolio companies to encourage a more
hugely since we first reported on biodiversity loss in Positive considered environmental approach, and we can
Conversations 2020. Most notably, the hotly anticipated 15th direct capital towards companies that are positively
UN Biodiversity Conference of the Parties (COP 15) took place impacting nature.
in Montreal at the end of 2022. At COP15, 188 governments For instance, Deere, a world leader in precision
adopted the Kunming-Montreal Global Biodiversity Framework agricultural technologies, is significantly reducing
(GBF), which will guide global action on nature through to the amount of artificial fertiliser and pesticides used
2030. Among the 23 targets of the GBF was a clear message on farmland, which benefits marine and terrestrial
that the private sector has an important role to play in halting ecosystems. Spiber is producing an alternative to
and reversing the loss of nature. As impact investors, we can cashmere using genetically modified bacteria. This
most directly contribute to Target 15, which calls for companies should offset cashmere production in the Mongolian-
and financial institutions to assess and disclose their risks, Manchurian steppes, 70% of which is currently
dependencies and impacts on biodiversity. degraded primarily as a result of overgrazing by
cashmere goats. In addition to these companies, nine
other holdings are helping to mitigate climate change,
a key driver of biodiversity loss in itself.
We must also be aware of the risks arising from
biodiversity loss. We are still in the early stages of
identifying these risks and how they affect portfolio
companies. As there is no perfect solution, we are
experimenting with different approaches that could
deepen our understanding of individual companies’
impacts and dependencies on nature.

1
A Life on Our Planet: My Witness Statement and
a Vision for the Future, David Attenborough.
 13

© ANDREJ IVANOV/AFP/Getty Images.

Following on from the research noted in Positive high water usage may equate to high impacts on
Conversations 2021, we conducted biodiversity biodiversity. In our correspondence with TSMC over
and water audits of the portfolio during 2022. The the year, we learned of its plans to construct water
biodiversity audit was valuable to understand how reclamation plants in Taiwan, which will reduce its
companies are starting to report in this nascent area water withdrawals from nature.
and in total, 11 companies mention their relationship
We are also experimenting with reporting tools, for
with nature in their reporting. Only two, Illumina
instance, trialling different providers of biodiversity
and Ørsted, have conducted work to understand the
footprints to quantify and standardise the impacts of
risks and opportunities that the relationship creates,
individual companies across the portfolio. We are
with Ørsted going one step further and setting targets
seeing Mean Species Abundance over Km2 (MSA.
to reduce its impacts on biodiversity.
Km2) beginning to be adopted as a standardised unit
As reporting on water use is far more developed, we to measure biodiversity impact, just as CO2e is for
used it as a proxy to identify companies exposed to climate change. However, we are eager to see further
biodiversity through their relationship to the water progress in the MSA methodology and data accuracy
cycle. The water audit highlighted that TSMC’s before utilising this as a metric for reporting.
14 E – Environment

© Ørsted.
 15

Taskforce on Nature-related
Financial Disclosures
Baillie Gifford is a Taskforce on Nature-related Financial
Disclosures (TNFD) Forum member. Through this forum, we
participated in the United Nations Environment Programme
Finance Initiative (UNEP FI) pilot of the TNFD LEAP (Locate,
Evaluate, Assess, Prepare) framework for financial institutions,
focusing on the pre-defined sub-industry of offshore wind farms.
The purpose of this pilot was to test the framework and feedback
insights on its relevance, practicality, and usability.
Ørsted, as a global leader in offshore wind energy, was identified
through this framework as having operations that were likely to
impact important areas of biodiversity. However, the company has
set an ambitious target: all new projects commissioned from 2030
must have a net-positive impact on biodiversity. Although there is
a lack of clear information on how this will be achieved, Ørsted is
methodically experimenting with many different approaches for
biodiversity restoration in partnership with several marine non-
governmental organisations. Its track record of setting ambitious
goals and sticking to them provides some reassurance that it is
giving this target the due attention and resources it deserves.
We believe that in achieving its target, Ørsted will be a leader
in its industry and will benefit from a closer relationship
with regulators, environmental groups and, possibly, local
communities. Given these opportunities and the potential negative
impacts of its operations on biodiversity, we plan to engage with
the company in 2023 to learn more.
This pilot process was very useful in developing our awareness
and understanding of some of the techniques, tools and datasets
used to assess nature-based risks. While the steps we undertook
were relatively straightforward yet time intensive, the main
difficulty we faced was in determining the size and scale of the
impact on nature in each priority marine location. Biodiversity
impacts are highly complex and location dependent, so
identifying the actual size and scale of impact would require site-
specific monitoring over time. We fed this back to UNEP FI and
the TNFD and look forward to working on a solution together.
16 S – Social

S – Social
We believe that encouraging responsible social practices is not only ethically sound but will benefit our
investment and impact cases for companies over the long term. We regard the materiality of social factors
through three primary lenses: how poor social practices destroy value; how good social practices create
value; and how companies solving social problems present attractive investments for our clients. While we
cover the latter in our Impact Report, we focus on our work on the first two areas here.
Researching and engaging on social business practices is complex and multi-faceted, not least given the
vast differences in attitudes towards disclosure worldwide. In 2022, through our research and engagement
with companies, we have continued to deepen our understanding of some of the issues which we believe
have enduring relevance to the portfolio as highlighted in the table below. We believe that engagements
will have the most impact and chance of success if underpinned by a strong understanding of the issues
and the context. We believe that agreement on what is good and bad practice is much less mature for social
areas than for environmental and governance topics. It is, therefore, beholden to us to bridge that gap with
contextual research.
As you will see from the Engagement section of this report, we have discussed a wide range of social topics
pertinent to portfolio holdings this year.

Alibaba* Bank Rakyat Coursera Deere Discovery FDM

Indonesia

Social impact Offline and Increasing Right-to-repair Ambition for Workers’ pay
and jobs in the digital banking accessibility union action; social impact amid inflation;
gig economy in rural areas smallholder flexible
farmer working
customers

Moderna Nu Holdings Ørsted Tesla TSMC Umicore

Vaccine Social Attracting and Labour rights Mineral supply Material

access and impact and retaining talent; and working chains sourcing and
global health customer diversity and conditions in human rights
protection inclusion China

*Alibaba was sold August 2022.

 17

Nu Holdings – leveraging financial inclusion research for engagement

Why we are engaging
as their main bank (49 per cent). While this data supports our
We invested in Nu, the Brazilian neobank, at initial public impact hypothesis, there were worrying trends and emerging
offering in 2021, encouraged by its role providing financial risks identified too. Across all income groups, 50 per cent had
inclusion and its disruption of an exclusive banking system higher expenditures than income, and 55 per cent of the CDE
which works for the few, not the many. With more than 70 classes did not have one month of savings available. Most
million customers in Brazil, Mexico and Colombia, Nu has people borrow to pay off other debts or to pay for basic needs.
a chance to change this and to further contribute to financial There is a growing indebtedness problem. Additionally, online
inclusion and financial health across Latin America. To maximise influences are increasingly peddling cryptocurrencies to many
this opportunity and reduce the risk of unintended negative who do not understand the risks.
consequences, Nu must maintain its customer-centric approach,
especially for its more economically vulnerable customers. Our engagement
As a digital-only financial services provider, deeply Combining a September trip to Brazil to meet with a host of
understanding the needs and vulnerabilities of all customers potential investments, we met with Nu and PlanoCDE. Our first
is vital when aiming to contribute to financial health. A robust meeting at Nu’s office proved an excellent opportunity to speak
approach to customer protection and considered product design with its ESG team about their role, the company’s efforts in
is essential. Through our initial research, we identified that financial education and customer protection. Having mentioned
Nu appears committed to achieving these aims, but given its some of the findings from the study, Nu’s ESG team was keen
importance, we wanted to learn more through engagement. to join a presentation by PlanoCDE at its offices. This was
In addition, we wanted to emphasise to Nu that while its a fruitful discussion where we explored many of the critical
higher-income customers may provide the early path to findings of the study and challenges facing companies in this
profitability, its millions of lower-income customers require sector, along with Brazil’s Central Bank, which also attended.
serving with care. After all, promoting financial health among
Having not been able to meet Nu in person previously during
the customers that will drive future investment returns is in the
the pandemic, this was an important step in building a strong
interest of long-term shareholders.
relationship with the company and starting a long-term
Our research dialogue on its social impact. We believe that a supportive
well-informed shareholder emphasising our second objective –
Our research over recent years has developed our understanding to contribute to a more sustainable and inclusive world – will
of what good practice looks like in delivering financial act to encourage Nu’s focus on achieving positive social impact
inclusion. Leveraging networks among organisations like and managing risks, such as over-indebtedness and financial
CGAP, the Consultative Group to Assist the Poor, and the Center illiteracy.
for Financial Inclusion, we have built a better appreciation of
where the social risks and opportunities lie. Given our positions We have been able to continue this conversation with Nu as
in Nu and MercadoLibre, we needed to understand better the it works on its formal financial inclusion strategy. We, with
unique and fast-moving Brazilian context, which may provide the PlanoCDE team, were subsequently invited to speak at a
more attractive future investment opportunities. financial inclusion immersion day for managers at Nu where
we emphasised the importance of focusing on financial health,
Having spoken with the São Paolo-based research consultancy not just inclusion, customer protection and promoting financial
PlanoCDE during our pre-investment research on Nu, we literacy among customers.
commissioned it to produce a report on the current state of
financial inclusion in Brazil. Comprising of a primary survey Outcomes
and interviews with experts, this study sought to understand
Measuring the success of our engagement with Nu will take
the financial health of all Brazilians, particularly the middle-
time. We will continue to monitor its approach to these areas
and lower-income earners, and to identify which fintechs and
and encourage its efforts towards responsibly serving its
approaches are proving successful in improving lives and
more vulnerable customers, and reducing its reputational
livelihoods.
and regulatory risks. We may repeat further studies in the
The results were enlightening. There was encouraging data future to allow us to see how the situation changes over time
revealing the speed at which account ownership has grown, in Brazil. We hope that openly publishing the PlanoCDE
from 57 per cent in 2017 to 87 per cent in 2022, driven in part research will have a broader impact on encouraging action
by greater levels of digitalisation and digital accounts, like Nu. towards addressing the economic precarity faced by millions
Of the new users, most of the newly banked are women (62 per of Brazilians. The study has since featured on the front page of
cent), of the CDE classes2 (67 per cent), and use digital banks one of Brazil’s most circulated newspapers, indicating this is
getting the attention it deserves.

2 – C, D and E classes are the low-income classes, as per the Brazilian government definitions, who have a per capita family income of up to
R$2,000 – or US$383.
18 S – Social

Deere – Understanding the ‘Right-to-Repair’ movement

Why we are engaging As software proliferated across different industries and became
increasingly as much of the product as the hardware, with similar
The ‘Right-to-Repair’ movement has been a growing socio-
(if not more) impacts on the usability/health of the product, the
political movement in the USA and EU. It broadly seeks to
right-to-repair movement has sometimes morphed to encompass
reduce the monopolistic powers of manufacturers and provide
the right-to-modify. This is when the request for the equivalent
consumers with more choices and freedoms when it comes
of manuals, tools and parts being available on the software side
to the right to repair or modify the products they buy. This
is conflated with the requirement for software to be modifiable
movement has a long history with the automotive industry,
without the risk of litigation or voiding the warranty.
but over the past decade, it has focused more on consumer
electronics and, more recently, farming machinery. Common modifications made by farmers can make machines
non-compliant with environmental regulations and increases
As Deere pushes deeper into precision agriculture and
the wear and tear of machinery, which goes unseen when resold
automation, its products have the potential to increase yields
and reduces the safety of operating the machines. Deere’s
and reduce the use of environmentally damaging fertilisers.
stance is that, while it supports the right of farmers to repair
Yet this also adds increasing complexity to its technology
their machinery, it does not support the right to modify it.
and software. Deere is being targeted by right-to-repair
After learning about the detrimental impact modifications
supporters calling for an investigation into allegations of unfair
can have, we support Deere’s stance on this issue.
restrictions and high repair prices. We began researching this
topic to understand better the risks it presents to our clients’ Our engagement
investment, the impact cases for the company and to inform our
engagement with Deere. This year we engaged with Deere on four occasions on a range
of issues and with various employees, including the Director
Our research of Sustainability, the Head of Asia, Africa and the Middle East,
and investor relations. Full details of these conversations are
The debate is well-covered in the public domain. However,
at the back of this report. We have predominantly focused on
by examining both sides and speaking with key stakeholders,
environmental risks and opportunities as our Positive Change
we were able to build a better understanding of the dynamics
hypothesis for investing in Deere is primarily environmental.
between Deere, its dealers and its customers.
However, in our latest meeting, we sought to understand the
We gained clarity on one important distinction: the difference technician shortages within the dealer network and how Deere
between the right-to-repair and the right-to-modify. The right addresses them. We feel this is important for the investment and
to repair has historically been a request for manufacturers to impact cases and were encouraged by the steps taken to support
provide manuals, tools and parts to independent mechanics and the dealers.
consumers, increasing competition in the repair market and
driving down costs. Deere maintains that it supports the right- Outcomes
to-repair but has been accused of restricting access to manuals In January 2023, Deere announced that it had signed a
and diagnostic tools for its machinery, monopolising the memorandum of understanding with the American Farm
aftermarket, and inflating costs through dealer consolidation. Bureau Federation agreeing to provide farmers and independent
There is some truth to these accusations, but the reality is not as repair facilities with software, equipment and documentation
severe as right-to-repair advocates argue. Through our research, to diagnose, repair, maintain and upgrade its equipment under
we identified areas where we believe Deere can improve, such “fair and reasonable terms”.
as reducing the cost of manuals and diagnostic tools. These Our extensive research has led us to appreciate the complexity
issues are likely to disproportionately affect smaller farmers of this issue for farmers, dealers and the company, and we
where the growing costs of repairs, compounded by repair do not believe that there is an easy fix. Over the coming
technician shortages, are squeezing their already tight margins. years, we will continue the right-to-repair conversation with
However, our research also found that given the complexity Deere, encouraging approaches that will reduce the demand
of the technology, many farmers prefer to have their machines for modifications, streamline repairs and balance dealer
fixed by Deere technicians. consolidation with ease of access for farmers.
 19

Looking ahead
The importance of companies’ social impact and In all cases, after properly considering each issue,
behaviour will continue to grow. Cost of living we will leverage our networks and resources to
crises, recessions, the impact of the lingering consider diverse stakeholder views. On some
pandemic, demographic changes, migration and occasions, this will lead to further engagement or an
geopolitics are bringing social divisions and investment decision. On others, there will be a level
inequality to the surface. Our focus on social matters of risk that we are willing to accept because of the
will continue to grow and we remain committed to potential for a company to deliver positive change
identifying companies driving positive social change through its products and services.
through their products and services. We continue to
monitor and encourage responsible social practices
on the issues described above, those raised in
previous versions of this report (eg cobalt and
human rights, inequality, diversity and inclusion),
and to react to areas of social risk and opportunity
as they arise. Some areas in focus for research in
the coming year include the human rights risks
associated with the massive demand for energy
transition minerals and the rights and conditions
of the lower-paid workers.
20 G – Governance

G – Governance
Effective corporate governance helps us build confidence that a company will deliver on its financial and
impact objectives. It also helps us build trust in management to implement the culture and values required
for success. Aligning the interests of management and shareholders is critical for the long-term success
of the company.
Just as there is no universally ‘right’ way to invest in the stock market, we believe there is no ‘one-size-
fits-all’ approach to corporate governance. We are open-minded about the diverse ways to govern and
manage a company, and we are pragmatic about the significant differences in expectations and rules
across different countries. Understanding the nuances of corporate governance across separate markets
and for companies at distinct stages of development is essential, as we are looking to identify and
encourage what works best for individual companies to achieve growth and impact.
 21

Where does Corporate Governance fit into the

Positive Change process?

Pre-buy Investment Portfolio Proxy

Engagement
analysis decisions monitoring voting

It would be disingenuous to say that our search for companies starts by examining
whether their corporate governance structures fit a specific mould, or are even
considered good practice. We begin by looking at companies whose products and
services solve big problems. However, we do believe that a company cannot be
financially sustainable in the long run if its approach to business is fundamentally
out of step with changing societal expectations. Likewise, success will only
be sustained if a business’s long-run impact on society and the environment is
considered. Corporate governance, therefore, informs our conversations and
decisions throughout our process.

Pre-buy analysis
To determine whether we will invest in a company, we always conduct an investment
analysis and an impact analysis using our consistent frameworks, reflecting our dual
objectives. Corporate governance is considered in both. In our investment analysis,
we specifically ask ourselves the question:

What attributes of the culture, governance and management

attitude will support or detract from the company’s ability to
capitalise on the opportunity?

In our impact analysis, which covers Product Impact, Intent, and Business Practices
(ESG), governance is primarily considered in the latter two sections:

INTENT: How committed is the company to delivering impact?

BUSINESS PRACTICES (ESG): What about the company’s business

practices detract from or support it in delivering positive change?

Within our answers, we consider areas such as:

— how management is incentivised to deliver impact
— how culture is set from the top
— what governance structures support the mission
— what role the board of directors plays.
In addition, governance is considered as we assess our ability to engage and influence
companies to maximise their growth opportunity and impact. Rarely do we speak with
independent public company board directors at this stage of our research, but we do aim
to talk with management and other executives before taking a holding in a company.
22 G – Governance

Investment decisions
The Positive Change team are diverse by
background, perspectives, experience and education,
so we expect to have a plurality of views on many
topics. We encourage those differences to be aired in
our stock discussions as we believe it makes us
better impact investors. For corporate governance,
the plurality of views is no different. For example,
what constitutes appropriate governance at Tesla has
often been debated within our team. While we have
had good conversations with Tesla’s Chair
throughout this year, we are under no illusion that
the CEO retains an outsized level of control. At
Shopify, this is formalised in a dual-class share
structure. That has its risks and benefits, allowing
the CEO to maintain his strong strategic intent to
serve small merchants amid growing pressure for
success among larger merchants. The concentration of
control is generally a feature of some of the private
companies in which we invest for the Keystone
Positive Change Investment Trust. This is to be
expected for earlier-stage private companies but it is
still beholden on us to make continual assessments
on the effectiveness of their governance and engage
the company if we feel change is required. We must
ask the companies how they expect governance to
change over time. A good answer is that it will as
the business scales and the demands shift.
The level of risk that individual team members
associate with the presence or absence of specific
governance dimensions also varies somewhat.
That said, while we may disagree on nuances,
we agree that independent oversight and control is
necessary and can help enable the fair treatment of
employees, customers and the environment, and
compliance with legal and regulatory requirements.
We recognise that no company is perfect in every
category, but we want to see, and advocate for,
a positive direction of travel towards continuous
improvement. Where we identify governance
shortcomings or risks, especially if there is no
imminent likelihood of progress, this will likely
affect our conviction in the investment and impact We recognise that no company is perfect
cases succeeding. We sold our holding in Alibaba in every category, but we want to see, and
this year, partly because we felt its growth had
outpaced its corporate controls and that this could advocate for, a positive direction of travel
lead to a deterioration in the impact case in the future. towards continuous improvement.
 23

Portfolio monitoring
We aim to hold companies for the long Times change, and company governance
term, likely through periods of both must move with them. Sustainability is
uncertainty and success. As good stewards a growing focus among the management
of the companies we invest in, we must of all companies. Management and
promote the correct corporate governance boards have a clear role to play in
for different stages of a company’s endorsing sustainable business practices
growth. This requires careful monitoring and empowering employees to build
of company news and events, regular better companies. Climate change,
update meetings with the companies, environmental impact, social inclusion,
and our assessment of what is the best tax and fair treatment of employees
corporate governance arrangements for should be addressed at the board level,
this company at this time. with appropriately stretching policies and
targets focused on the relevant material
Today, Positive Change companies
dimensions. Rather than a proliferation of
have diverse governance arrangements
committees determining the company’s
and quirks. As bottom-up investors in a
approach to these issues, we would prefer
concentrated portfolio, we refrain from
that the board of directors takes the lead
being too focused on portfolio-level
on oversight.
data. We occasionally compare key
metrics across the portfolio because We are generally encouraged by the
this can identify companies for further steps and governance frameworks being
assessment. About one-third of portfolio introduced to manage and report on
companies have dual-class share environmental and social issues. Ørsted,
structures and companies considered for example, has fully integrated the
‘controlled’. Only around half of responsibilities of sustainable business
portfolio companies have an independent practices throughout its leadership.
chairman, but several have appointed The Board of Directors sets the strategic
senior independent directors to provide direction for sustainability, and the Audit
more objective oversight. and Risk Committee supervises and
oversees ESG performance and reporting.
A director in a company held in Positive
There is clear senior focus, oversight
Change will have, on average, held their
and accountability on key ESG issues.
position for 4.6 years, and be twice as
This year, we met with several portfolio
likely to be a man than a woman. Of
holdings to discuss their sustainability
course, there are outliers. Ecolab’s board
governance, including Umicore and
has an average director tenure of nine
Coursera.
years, but companies that have listed
more recently, such as Duolingo, have an
average tenure of under two years. Only
two companies, Chr. Hansen and Ørsted,
have equal numbers of women and men
on the board, and TSMC has only one
female director on its 10-person board.
© Duolingo.
24 G – Governance

Engagement
As you will see on pages 30–48 of this report, we engage extensively with portfolio companies throughout
the year on a wide variety of topics, including corporate governance. Where possible, we aim to discuss these
matters with the appropriate company representatives. In 2022, we had eight meetings with non-executive
board directors, which we hope to do more of in the future. Often AGMs and corporate actions are catalysts to
engage on specific aspects of a company’s governance.
Changes in the board and management are also catalysts for engagement. Over the last eighteen months, we
have spent time considering the culture and governance that the new CEOs at Novozymes and Umicore will
set from the top, meeting with both in 2022. We also met with Umicore’s Chair, which allowed us to ask about
the board’s view on what the new CEO will bring. When Moderna’s new CFO quickly departed following
public allegations of impropriety in a previous role, we spoke to the company to understand better how and
why this happened. We also aim to encourage appropriate positive change in the board too, emphasising to
Moderna the importance of a strong audit committee now it is a much larger and more complex company than
when we first invested in 2018.

Who we met with

Executives and/or boards – 69%

Investor relations – 17%

Other – 14%
 25

Proxy voting
Corporate governance considerations both at Tesla’s AGM, which we thought we may want to support. However, we
are central in deciding how we will had merit. However, we opposed the ultimately opposed this resolution after
vote on behalf of our clients. Supported majority because we either felt that they deep research and a comprehensive series
by our central ESG Team, which has did not support our clients’ investment and of engagements with the CEO, Chairman,
been bolstered in recent years, and impact aims or that they did not address a experts in the field and the proposal’s
collaborating with other holders at Baillie legitimate issue in the right way. proponents. We concluded that even if a
Gifford, we consider and decide on each report was commissioned, the likelihood
One such shareholder proposal, filed at
agenda item at every shareholder meeting that it would help end the pandemic within
Moderna’s AGM in April, required careful
of portfolio companies. Where we vote a reasonable timescale was very low. By
consideration. We hold shares in Moderna
against management, we communicate the time of the AGM, last-mile delivery
because it is developing an entirely new
our rationale to the company. If we have and overcoming vaccine hesitancy were
modality, through mRNA, to treat and
governance concerns or areas the key bottlenecks, a fact
we would like to influence, we that experts in the field
often seek to arrange calls and corroborated.
meetings with the company.
We also gained comfort
We do not believe our that Moderna’s leadership
opposition to management had deeply explored the
should be viewed as an feasibility of safely licensing
indicator of our interest in its technology and to
corporate governance or as a whom, in consultation with
badge of honour. We would stakeholders such as the
rather not have to, but we will World Health Organisation.
oppose resolutions where, We trusted in management’s
following our discussions view that further technology
and pre-AGM calls with transfer to companies in
a company, we feel that a LMICs was not the best use
management proposal is of its limited resources at that
not aligned with long-term time, and we were assured
shareholder return and impact. that the company would
We did so at the AGMs of continue to consider this. We
Abiomed, Discovery and also trusted management’s
Xylem in 2022, because decision to take a cautious
we did not believe that the approach to enabling the safe
incentivisation in the executive © Los Angeles Times/Getty Images.
proliferation of the mRNA
remuneration plans would platform worldwide, thereby
suitably encourage a long-term ensuring its enormous
mindset at the company. We prevent a wide range of diseases, which potential can be realised over the long
look for remuneration policies that are we believe can reduce health inequity over term. That is firmly in the interests of the
simple, transparent and reward superior time. However, a resolution filed by Oxfam world and, importantly, our clients.
strategic and operational endeavour. and several shareholders sought to force
The steps Moderna is taking to expand
We believe incentive schemes can be the company to commission a third-party
access to mRNA technologies in the future
important in driving behaviour, and we report analysing the feasibility of promptly
and ensure the world is better prepared
encourage policies which create genuine transferring IP and know-how to facilitate
for future pandemics are commendable.
long-term alignment with external capital the production of Covid-19 vaccine doses
However, we will continue to scrutinise
providers. by qualified manufacturers in low-and-
this subject and have since engaged with
middle-income countries (LMIC).
Proposals filed by shareholders at UNICEF, the United Nations Children’s
portfolio companies have become more Because we shared the goal of ending Fund, to build our understanding of the
common in recent years. In 2022, we the pandemic as soon as possible, we main issues.
supported just two shareholder proposals, initially thought that this was something
26 Engaging for Positive Change –
Company Conversations

Engaging for Positive

Change – Company
Conversations
Engaging with companies is fundamental to our role as investment managers, impact
analysts and stewards of our clients’ capital. We think deeply about what to engage
with portfolio companies on, the best methods for doing so, and how we should
prioritise our engagement efforts. Knowing that our time with company management
and board members is precious, we focus our resources on the most pressing
companies and relevant topics. In 2022, we had 102 engagements with 39 companies,
69 per cent of which were at the executive level, reflecting our good access to
companies and strong relationships with management teams.

Our approach
Mirroring our approach to investing, we aim for our company engagements to be
thoughtful, long-term, and based on bottom-up analysis to maximise our impact.
As we invest in companies that we are excited about and are run by people we admire,
most of our meetings are ‘positive conversations’ about important topics. We believe
these interactions are relevant to both the future success of the business and society.
Many of our company engagements are ongoing, reflecting our multi-year approach
and the nature of complex topics that won’t be changed overnight or even over a few
quarters. Our engagement objectives fall into three categories: Understanding, Relationship
Building and Influencing. Detailed examples are given of each, followed by a
summary of all engagements with portfolio companies over the year.

Objective of engagement

Understanding
72% of engagements in 2022
Relationship building
13% of engagements in 2022
Influencing
15% of engagements in 2022
 27

1. Understanding
This objective is the most common reason for us to
engage with companies. It is vital to help build our
insight and conviction into the investment and impact
potential of the portfolio holdings. Where possible, we
aim to meet with investee companies every 18 months.
We often collaborate with other Baillie Gifford
strategies, and we have systems for sharing insights
across our investment department.

Joby Aviation
Objective: Joby develops electric vertical take-off and
landing (eVTOL) aircraft. Having met the Founder
and CEO in Edinburgh in June, we had a video call
with the CFO in November to further understand the
milestones the company has set out.
Action: We discussed the company’s progress in
certifying its aircraft with the Federal Aviation
Administration (FAA) in the US, following a decision
by the FAA to revise the certification requirements for
electric vertical take-off and landing aircraft. We also
discussed the company’s plan for commercialising its
service, including its recently announced partnership
with Delta Airlines and companies providing ground
infrastructure.
Outcome: Ongoing. The company has a long road
ahead in its journey to build its eVTOL aircraft and
build out an Urban Air Mobility market. We will
continue to monitor its progress.

Peloton
Objective: To gain a deeper understanding of recent
management changes and the implications for the
business as it navigates several operational challenges.
Action: We had a series of calls with Peloton and
spoke with the former CEO, CFO, new CEO, and
board members. The calls were helpful in understanding
some of the internal discussions and team dynamics
that had preceded the change in management, as well
as the strengths of the new CEO in relation to the
challenges that Peloton faces. The call with the recently
appointed CEO was particularly enlightening. We were
encouraged by his ambition and how he intends to help
Peloton capitalise on the growth opportunity.
Outcome: Ongoing. Our conversations with the CEO
have provided comfort around the recent turmoil and,
crucially, the next steps for Peloton. We will continue
to monitor certain milestones at the company as it
enhances its financial discipline and aims to grow its
customer base further.
28 Engaging for Positive Change –
Company Conversations

2. Relationship building
Building the right relationship with investee companies is a key objective because it helps to achieve
our other engagement objectives. From our experience, strong relationships help enable impactful
engagement. That is why we prefer to engage directly with companies rather than through external investor
collaborations – although we consider each of these on merit and frequently speak with other investors on
key issues in addition to our own company conversations.

Moderna
Objective: Over the year, we have sought to deepen our relationship with Moderna to support good
practices relating to vaccine equity.
Action: We had a call with the CEO to discuss, among many things, the company’s approach to pricing
products. While his thinking continues to evolve, the company is not afraid to break with traditional industry
models regarding its pricing strategy. It continues to balance fairness, value to the system, and profitability.
Outcome: Ongoing. We are encouraged that Moderna is devoting so much time to its pricing strategy
and we will continue to actively engage with it on this subject. This will become more significant as it
progresses through its strong pipeline of vaccines and treatments, most recently highlighted by its
successful clinical trial results for a personalised cancer vaccine.

Spiber
Objective: To build a relationship with Spiber, a private company based in Japan which is using synthetic
biology to create low-impact fibres for the fashion industry.
Action: We were very grateful that the Founder, Chief Marketing Officer and a board member visited us
in Edinburgh during a trip to identify business opportunities within the European fashion industry. The
meeting was an excellent opportunity to meet members of the management team in person for the first time,
hear how the team managed through the pandemic, and learn about recent and upcoming developments. We
were also fortunate to sample Spiber’s incredibly soft Brewed Protein™ fibres, the output of many years of
hard work.
Outcome: Ongoing. Relationships with our private holdings will take time to build, but have the potential
to be very rewarding for both parties. We look forward to supporting and learning from Spiber over the
coming years.

© Nubank_HickDuarte
 29

3. Influencing
While our primary impact is through capital allocation to companies achieving positive change, we
also aim to have a positive impact by engaging with investee companies. We will offer our insight by
identifying actions that might maximise a company’s potential to pursue growth and impact. Where we
believe a company’s behaviour is detrimental to either, we will engage, offering our views and encouraging
change where appropriate. If we take voting action against management, we tell the company our reasons
for doing so, as we did after the Xylem AGM in 2022. Measuring the progress of these engagements, many
of which will take place over several years, is challenging but is something we are actively working on.

Climeworks
Objective: We wanted to understand the company’s ambitions for the USA, which we believe will be a
large market for direct air carbon capture.
Action: We had a video call with the co-CEO and CFO of the Swiss direct air capture company. We learnt
more about the company’s strategy in this key market and encouraged Climeworks’ ongoing development
in this geography.
Outcome: We have been pleased by Climeworks’ progress since our investment, but also encouraged the
company to invest aggressively and further its competitive advantage.

Coursera
Objective: In line with Baillie Gifford’s NZAM commitments, we wanted to encourage online education
platform Coursera to start reporting its carbon emissions and set Paris-Aligned targets over the next
few years.
Action: We had a call with Investor Relations to inform Coursera of our net zero commitments, to learn
how it views its role in meeting the Paris agreement, and to encourage the measurement and reporting of
Scope 1 and 2 emissions as a first step. We later participated in a stakeholder engagement call linked to the
production of Coursera’s first ESG report, where we advocated for emissions reporting and target setting.
Outcome: Ongoing. We will observe the progress Coursera makes in reporting and target setting over the
next two years and plan engagements accordingly.
30 Engaging for Positive Change –
Company Conversations

Company engagement R Relationship U Understanding I Influencing

building
10x Genomics March We welcomed 10x Genomics’ CEO in Edinburgh to learn more about the long-
U term market opportunity and key unlocking features for its platforms, especially
on the spatial transcriptomics side with Visium and the newly announced Xenium.
Importantly, we discussed how culture has evolved and what 10x needs to do in
order to retain a focused, nimble and innovative culture. We also talked about some
short-term operational challenges for the business as a result of the pandemic.

April We visited 10x Genomics’ offices in Pleasanton and discussed a range of subjects.
R The meeting was particularly helpful in improving our understanding of the culture
of the company, especially as it scales. We also gained a deeper understanding of
management’s intent to deliver impact.

AbCellera June We had a video call with the CEO and CFO of antibody discovery company
I AbCellera. We discussed how AbCellera is embedding computation science and
information systems into its discovery workflow to improve efficiency and speed,
and to generate more data for machine learning. We also discussed some recent
progress, including the work on CD3 antibodies, ion channels and GPCR targets.
Finally, we engaged on GHG emissions measurement and reporting and were
pleased to hear that AbCellera are open to moving forward on climate disclosure.
We will provide them with some guidance to help them start their journey.

December We held an update call with AbCellera’s CEO and CFO. AbCellera has been in the
U Positive Change portfolio since March 2021 and has been subsequently purchased
for other Baillie Gifford strategies, so this was a good opportunity to further our
relationship with the company. We explored the business model and heard how
AbCellera retains the option to invest in drug development programmes as it
progresses. This has the potential for greater revenue generation and impact for
AbCellera in successful drug candidates. We also heard about AbCellera’s own
pre-partner pipeline of drug development where it is going after some particularly
difficult targets. This has required a lot of upfront investment but will be hugely
additive in the long run and helps AbCellera learn more, to the benefit of its
partners. Finally, we covered company culture and were reassured that morale
remains very strong despite a challenging time since its IPO in December 2020
and a trebling in employee numbers.

Abiomed February We had a call with Abiomed’s CFO and Investor Relations to discuss the
U company’s ability to overcome the barriers to adoption of its heart pump Impella.
Overall, Abiomed seems well positioned to generate long-awaited randomised
controlled data and to address concerns about vascular access and closure within
the next five years. We also discussed and commended the company’s role in
supporting hospitals during the pandemic via its 24x7 remote support.

Alibaba January We met with Alibaba’s director of ESG engagement and Investor Relations in
I order to encourage improved ESG reporting and to explore how sustainability is
managed across the Group. Alibaba recognises that its ESG reporting has not been
comprehensive enough in the past and has committed to significantly improving it
in 2022. The ambition to target ESG improvements was evident on the call and we
commended the ambition in Alibaba’s recently published carbon neutrality action
plan, which seeks Scope 1 and 2 emissions neutrality by 2030. We also focused on
the Group’s social responsibility strategy and discussed its new Common Prosperity
committee which, chaired by the CEO, aims to establish accountability across
the Group for delivering on a number of social initiatives, including improving the
quality of jobs provided and enabled by Alibaba. We followed up our call with further
communications illustrating good sustainability practice and reporting.
 31

Alnylam February We had a video call with Alnylam’s CEO Dr. Yvonne Greenstreet and President
U Dr. Akshay Vaishnaw. We discussed Alnylam’s role in driving the development and
commercialisation of RNAi therapeutics, including the company’s approach to risk-
taking, partnerships and capital allocation. We also discussed company culture and
innovation, in particular the research Alnylam is doing in Alzheimer’s and other more
prevalent diseases which is encouraging from a growth and impact perspective.

ASML January We had a call with the remuneration committee chair, Terri Kelly, to discuss proposed
I changes to the remuneration policy. Following the call we asked for more information
on the reason for switching from one financial metric to another (ROAIC to CCR).
Kelly provided some additional information on ASML’s rationale which made us more
comfortable with the change. In addition, we fed back our preference for ASML to use
a smaller more direct list of comparators in future for benchmarking total remuneration.

June Our meeting with CEO Peter Wennink, Head of Extreme Ultraviolet (EUV), Board
U Member Christophe Fouquet, and Investor Relations Marcel Kemp was an
opportunity to learn more about ASML’s culture and adaptability, particularly
against a changing geopolitical backdrop. We learnt that Wennink believes that
success for the semiconductor lithography machine manufacturer is almost entirely
about people – both those within the company as well as the companies upstream
and downstream. He has instilled the view that ‘nobody is more important than
the company’ as a common trait within the senior management team, while more
broadly all ASML employees are encouraged to ‘challenge, collaborate and care’.
Overall, we were encouraged by senior management’s commitment to ASML’s
culture, its adaptability and long-termism.

December We met with Investor Relations to discuss ongoing sustainability efforts. We spent
U some time discussing its move to increase the compatibility of machine parts
between generations, which has positive benefits for the economics and the
sustainability of the machines. We also discussed how sustainability considerations
complicate the standard engineering approach of optimising for cost, quality and
speed to market. One example is the consideration of alternative KPIs for customer
success, such as energy used per successful die-cast rather than just per wafer.
We also discussed ASML’s role in the semi-industry and its capacity for driving
radical and incremental change. The conversation deepened our understanding of
an influential company and opened avenues for further in-depth engagement.

Bank Rakyat May We met Bank Rakyat Indonesia’s CFO in our Edinburgh office. Competition from
U fintech companies and digital disruptors is increasing in Indonesia, so we were
interested to learn how it is responding to this. The CFO argued that a combination
of physical and digital offerings is required to succeed, especially in rural areas. For
instance, with the help of loan officers, 16 per cent of Bank Rakyat’s 100 million-
plus depositors now use the bank’s mobile app. We also discussed its relationship
with the government, including the influence of the Ministry of State Owned
Enterprises (as the government has a ~55 per cent stake in the company) and the
compensation and incentives of senior management teams. Finally, we discussed
ESG, including Bank Rakyat’s lending criteria for palm oil plantations.

September Following on from previous meetings, we wanted to learn more about the
U bank’s digital strategy and requested a call with its Director of Digital Banking
and IT. We learnt about Bank Rakyat’s digital journey, which started with using
IT to improve the efficiency of the bank’s own operation – such as Customer
Relationship Management software to increase the productivity of its loan officers
and advanced data analytics for risk modelling – but is now increasingly focused
on providing digital banking products that can widen the accessibility of financial
services. We noted the progress of Bank Rakyat’s mobile banking app, which
seems to be gaining traction. We also discussed the opportunities and challenges
for Bank Rakyat as part of its digital transition. We believe having strong digital
competencies is important for Bank Rakyat’s long-term investment case and will
continue to monitor the company’s progress on this front.
32 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Berkeley Lights January We met with the management of Berkeley Lights to discuss the recent announcement
U that the CEO will be stepping down. While Eric Hobbs was the CEO he grew the
company revenue from $5m to $85m, but it now needs a CEO with a different set
of skills in order to grow to $1bn. Hobbs will stay on as the President of Antibody
Therapeutics given his relationships with customers and technical expertise.

March We visited Berkeley Lights at its HQ in Emeryville, California and met with
R Dr. Siddhartha Kadia, the company’s new CEO and Eric Hobbs, President of
Antibody Therapeutics. We learnt about Dr. Kadia’s background, his motivation
for joining the single cell equipment manufacturer, and his long-term ambitions
for the company. We also visited Berkeley Lights’ impressive BioFoundry lab,
where the company conducts services for partners.

Beyond Meat March We visited Beyond Meat’s HQ and research and development (R&D) facility in Los
R Angeles and met with various members of the executive management team. We
discussed the operational challenges Beyond Meat has been experiencing and were
reassured by the explanations, as well as the plans to reinvigorate growth. Despite
those near-term challenges, Beyond Meat continues to invest for the long term,
including in manufacturing and supply chain, which we view positively. Finally, we
were impressed by the scale of the company’s R&D facility during our tour of it.

May We had a video call with Beyond Meat’s CEO and CFO. We discussed in detail the
U challenges the company has faced recently, especially in the first quarter. While the
long-term growth opportunity remains attractive and Beyond Meat still has a leading
position in the plant-based meat market, the company’s execution has not been
perfect. Ethan Brown, CEO, believes that the new Chief Operating Officer and Chief
Supply Chain Officer will help Beyond Meat improve its operating performance.
We will continue to monitor this area for progress over the coming quarters.

Chr. Hansen April We met Chr. Hansen’s CEO in Edinburgh for an update on the business after a period
U of acquisitions. We were reassured by the integration of the new businesses, which
bolster Chr. Hansen’s Health and Nutrition segment, as well as the retention of talent.
Separately, we discussed the recent announcement of a change in Chief Science
Officer, which seems like a well-managed internal progression. We also discussed
the challenges of managing rising input costs with Chr. Hansen’s already premium
pricing. Although the inflationary environment creates pressures, we are encouraged
by the company’s leading market position and strong customer relationships.

October We met with Investor Relations at our Edinburgh office following year-end results.
U It has been a tough year but the company has demonstrated adaptability. We used
this opportunity to explore many different parts of the business, such as the scaling
out of Plant Health products in Latin America; customer demand and international
growth opportunities in Fermented Plant Bases; and how the company is responding
to the opportunity, or threats, posed by the early-stage synthetic biology industry.
We also discussed progress made by Bacthera, the joint venture with Lonza
Therapeutics, which is of particular interest to our impact case for Chr. Hansen.

Climeworks August We had a video call with carbon capture company Climeworks’ CFO and met
U the Head of Corporate Finance at a conference in San Diego. We learnt about
Climeworks’ progress in fixing some of the mechanical issues for its Orca plant in
Iceland. Orca is a First-of-a-Kind direct-air capture plant, so some teething issues
are to be expected. We were reassured by the higher availability factor for the
capture containers that have been repaired. We also discussed Climeworks’ plan
for its next two plants, which will be 10x and 100x bigger than Orca respectively.
Finally, we received an update on the demand for voluntary carbon removal from
corporate and individual customers.
 33

Climeworks November We had a video call with the co-CEO and CFO of Swiss carbon capture
(continued) U company Climeworks’ to discuss the company’s ambition in the US. We believe
that the US will be a large market for direct air carbon capture with significant
corporate demand and government support so encouraged Climeworks’ ongoing
development in this geography. We also took the opportunity to learn more about
some of the recent hires that Climeworks has made. We have been pleased by
Climeworks’ progress since our investment, but also encouraged the company to
invest aggressively and further its competitive advantage.

Coursera March We met with online education platform Coursera’s CEO and CFO at its Mountain
U View, California HQ to learn more about the opportunities available to the company
as education changes rapidly. We discussed Coursera’s views on accreditation and
its professional certification programs as well as the Degrees business and how
different universities are adapting to the move online.

May We had a video call with Coursera’s CFO. We discussed the Degrees business,
U both the near-term headwind due to the strong US labour market, and the long-
term opportunity as more universities start to embrace online degrees. We also
discussed the Consumer business, where the performance of the Professional
Certificates business has been impressive. We learned more about how Coursera
works with corporate partners and its pipeline for Professional Certificates.

August We met with Coursera’s CEO, CFO, and Investor Relations at our Edinburgh Office.
U We discussed Coursera’s product evolution over time as the company attempts to
navigate the vested interests in the education industry and find product-market fit.
We noted some positive progress such as its partnership with the Milken Center for
Advancing the American Dream. We believe that learning requires more than just a
piece of technology, and having partners like Milken who can provide support, access
to job opportunities, and other services will be important for Coursera to unlock
the growth opportunity. We also discussed Coursera’s competitive advantage and
management’s strategy to continue expanding its catalogue of Professional Certificates.

September We spoke to Investor Relations to delve deeper into how Coursera is improving both
I its product impact and business practices. We learnt more about how the company
is enhancing the mobile experience to increase the accessibility of its courses, and
how it is experimenting with its data to create features that ultimately improve the
employment prospects for learners. We also took the time to communicate our Net
Zero Asset Manager’s commitments during a conversation on the company’s initial
efforts to produce an ESG report. We were pleased to see that the company intends
to put the same thoughtfulness into this report as it has put into its Impact Report.

December We took part in a stakeholder ESG materiality assessment for Coursera as part of
I its efforts to formalise its ESG strategy. We strongly advocated for the company
to take a thoughtful approach to prioritising the most relevant issues, rather
than pursuing a tick-box approach. We emphasised the importance of providing
exceptional and inclusive education which we believe should be a high priority
given its alignment with Coursera’s mission and ability to create value. We also
picked out several ESG topics associated with maintaining trust among customers
and educational partners which we believe is critical to avoid value destruction.
Finally, we reemphasised the need for emissions reporting and net zero alignment.
34 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Deere January We met with agriculture equipment manufacturer Deere’s Director of Executive
I Compensation, Director of Sustainability, and Investor Relations ahead of the AGM.
We gained a better understanding of Deere’s philosophy around compensation and
encouraged more stretching targets under its long-term incentive plan.

March We met with the Director of Sustainability to discuss Deere’s recently published
R sustainability report, which has progressed significantly over the past two years.
We expressed our support for the new focus on product impact, greater transparency
around ESG governance, measurement and disclosure of Scope 3 GHG emissions,
science-based targets for GHG emissions, and a new range of sustainability targets
focusing both on business practices and product impact. We spent most of our time
understanding the details of the targets related to product impact, including how
baselines are set and how Deere plans to measure progress. In doing so, we gained
a deeper understanding of Deere’s software and data business, and have greater
faith in the intent of Deere to deliver impact through its products. We also voiced our
support of the recent moves the company has made to expand software to farmers,
and in reaching an amicable agreement with the trade union.

October We covered a range of topics in our call with Deere’s Investor Relations. In addition
U to discussing the quarterly results, we learned of the short and long term steps
Deere is taking to respond to the shortage of technicians across the dealer
network, and in overcoming some of the supply chain challenges which remain
from the Covid-19 pandemic.

November At a conference on creating sustainable agricultural systems in Asia, we met with

U Deere’s Head of Asia, Africa and the Middle East. We discussed the customer
base and long-term opportunities in emerging markets; the efforts Deere is taking
to bring mechanisation and precision agriculture to the region; and what can be
done to improve the lives of smallholder farmers. Overall, we left this meeting very
impressed by the depth of knowledge Deere has when it comes to smallholder
farmers, and its intent to deliver social impact for those who most need it.

Dexcom September We met with the CFO to understand if and how the company’s vision to improve
U health outcomes expands beyond the immediate patient group of intensively
managed diabetics to also include non-diabetics, in both the US and internationally.
We spent time learning about the new hardware and software improvements that
Dexcom believes it can use to unlock new opportunities and came away with a
strong impression of the company’s devotion to helping sufferers of diabetes.

Discovery October We had a video call with Discovery’s CFO to discuss the company’s Full Year
U 2021–22 results. The core businesses of life and health insurance in South Africa
and the UK have shown robust performance, especially under a difficult operating
environment. The health insurance business in the UK was a particular bright
spot as Discovery continued to gain market share with its innovative shared-value
offering. The international businesses of health insurance in China and licensing
of its Vitality platform to global insurers had a mixed year. While growth continued,
restructuring at Ping An (Discovery’s joint venture partner in China) and a new set-
up with AIA added uncertainties. We discussed these uncertainties with the CFO
and noted his optimism for the long-term prospects of both businesses.
 35

Discovery November At a conference in London we met with Discovery’s CFO, Investor Relations, and the
(continued) U Head of Sustainability at Vitality, its wellness insurance brand. The meeting was wide-
ranging, covering how Discovery is recovering from the pandemic and some of the
challenges it has faced in Asia, which management expects to be rectified as Amplify
Health, its partnership with AIA gains traction. This also proved a useful opportunity
to explore how Discovery is progressing with its impact ambitions. The pandemic has
reduced the breadth of impact Discovery can achieve in the near term, but it also was
further validation of its Vitality product whose users saw much lower hospitalisation
rates from Covid-19 than the general population. It was emphasised to us that the
company remains very much committed to its long-term mission to make people
healthier through incentivising healthy behaviour. We also questioned Discovery’s
executive remuneration plan which we believe to be too short term. We subsequently
opposed the plan at the AGM and communicated our reasons to the company.

Duolingo August Our call with the CEO of language learning app Duolingo centred primarily on
U culture, a subject about which he clearly thinks deeply. A particular focus was on
how the company tries to reinforce long-term thinking and customer-centricity as
it scales, competes, and monetises. The call was full of anecdotes of occasions
when the company has had to make tough decisions, as well as details on team
structures and processes that try to embed values.

November We visited Duolingo’s management team at its office in Pittsburgh to get to know
R the company better. In our long meeting, we developed our understanding of the
competitive advantage of the company in the app and testing space, and the
culture and benefits of being based in Pittsburgh. We also dived deeper into the
opportunity that AI brings in advancing the learning experience and increasing
customer stickiness – a subject that the CEO was clearly very excited about. The
features unlocked through AI will significantly enhance the capabilities of the app
and inevitably lead to better outcomes for customers.

Ecolab March During a call with Ecolab’s CEO Christophe Beck, we continued to explore the growth
U opportunities and competitive edge for the hygiene products and water treatment
solutions company. The company will benefit from favourable tailwinds such as
growing net zero commitments, as well as its ability to catalyse positive change
through product and program development while its investment in digital capabilities
will strengthen its competitive edge. In a rising cost environment, it was helpful to
explore the company’s pricing power which remains strong given its cleaning and
hygiene products make up a small portion of expenditure for its customers.

May In this wide-ranging meeting we learnt how the Covid-19 pandemic had affected
U hygiene product and water treatment company Ecolab and the markets in which
it operates, which have proven to be surprisingly resilient. We also talked about
Ecolab’s approach to innovation, both in terms of the use of digital technologies and
in localising business strategies, such as its activities with expanding into China.

November We had a call with the CTO of Ecolab to deepen our understanding of the company’s
U approach to R&D, an area that we have previously identified as a competitive
advantage. We learned more about how the function is organised, what inspired
R&D, and how the company prioritises the deployment of resources accordingly.
The key learnings were 1) that the CTO believes Ecolab is a very innovation and
technology-driven company; 2) that solving problems for customers is key (the
R&D team spends 20% of its time with customers); 3) economics matter most to
customers, but increasingly so do sustainability and reputation; and 4) the company
monitors emerging technologies through venture capital investing and working in
partnership with start-ups. The commitment to R&D is encouraging not just from a
competitive position perspective but also in terms of the company’s intent to help
customers operate safer, more efficient, and environmentally sound facilities.
36 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

FDM March We had a call with the CEO and CFO of UK-based training and recruitment firm,
U FDM. Overall, they were extremely upbeat for the year ahead and are seeing
unprecedented levels of demand in all regions, including the USA where the trend
of ‘onshoring’ is providing a strong tailwinds. Another important development is
that FDM has removed the training fee requirement for Mounties in the UK and
Canada, and has halved the fee in the US, with a view of eventually removing it
entirely. This means that Mounties no longer have to pay a fee if they leave training
early. While this clawback provision was rarely ever enforced, it has been an area
of controversy in the past and a subject which we have spoken with the company
about many times.

July We spoke with the CEO and CFO of FDM where we explored the market backdrop
U and how the company is adapting to changes in the workplace. With the disruption
of Covid-19 reducing, the longer-term trend towards digitalisation in many
industries should support investment in technology expertise and the FDM model
of ‘try before you buy’ remains popular. Pleasingly, the recruitment model is gaining
traction outside the UK and the company is growing and diversifying its customer
base, as well as further penetrating existing customers. It is difficult to establish
with certainty how the company might fare in an inflationary environment which,
on the one hand, might be a headwind as customers tighten belts but could also
provide a tailwind with clients preferring not to take on permanent employees.
It was also an opportunity to discuss how the company is addressing inflation
through salary increases for its consultants and how it is adapting to hybrid ways of
working which makes its training courses more accessible.

HDFC May We were delighted to have the CEO of HDFC Ltd, the Indian mortgage provider,
U visit our Edinburgh office so we could explore the rationale for the recently
announced merger of HDFC Ltd and HDFC Bank. Having considered merging
on several occasions over the years, changes to the regulatory system and the
interest rate backdrop mean that it now makes good financial sense to merge
the two businesses. The CEO outlined several reasons as to why it is a positive
development for both businesses; in particular, it is striking that the merged entity
will have a much bigger distribution footprint from which it can sell mortgage
products. The merger is still subject to regulatory approval and won’t be completed
until May 2024.

June We had a climate-focused call with HDFC’s Head of Business Responsibility to

U explore how the company is approaching addressing its own carbon footprint
and the physical risk of climate change within its business. On the former, despite
a lack of regulation, HDFC has been applying more stringent environmental and
social criteria on its construction loans and has increased the amount of on-site
project auditing. The direction of travel is positive, and reporting has improved,
but HDFC is still not accounting for the ‘financed emissions’ of its loan book;
something that we believe is important and we will continue to encourage. While
Indian companies are less mature in this area, and on assessing the implications
of the physical risk of climate change to their loan books, it is pleasing to hear that
HDFC is working with partners in both areas.

November We attended a Group Meeting with the Vice Chair and CEO of HDFC held in
U Mumbai at the CLSA India Forum. It had been sometime since the team had
been able to visit India and we took advantage of the chance to see how the
Indian property market has evolved during and post the Covid-19 period, and the
implications of interest rate cycles for the company’s evolution. The merger with
HDFC Bank was also high on the agenda, and we gained clarity on the timeline,
intentions for the two large subsidiaries, and how distribution is likely to evolve
following integration.
 37

HDFC December We met with the CEO of HDFC to discuss how its merger with HDFC Bank will affect
(contiuned) U its high-quality culture. The discussion covered several areas of governance and
culture at both organisations and insight into what cultural elements should endure.
It was interesting to hear about the role of ownership and recruiting fresh graduates
and how that contributed to a collective focus on success. The company’s stock
option plan has a wide breadth, enabling all employees to have buy-in and
responsibility for the company’s success. The low turnover rate and low loan losses
were both positive outputs that were attributed to this culture and ownership. It was
positive to hear that no senior executives had left the company in the previous year,
a sign perhaps that they have confidence that the merger will be successful.

Illumina June We met with the CEO and CFO of Illumina at its offices in California. The conversation
U explored each of the three pillars the CEO views as the future of Illumina:
Tools (sequencers), Diagnostics (Grail), and Drug Development. Illumina’s
competitive edge and market position in its core business of developing and
selling next-generation sequencers remains strong, but competition is increasing,
especially in long-read applications.

September We had a call with the CEO, Francis deSousa, and the new CFO, Joydeep
U Goswami. We discussed Grail, a liquid biopsy company whose acquisition by
Illumina in 2021 was under review by the European Commission, and the options
open to Illumina should the European Commission prohibit the acquisition.

December In our meeting with the CEO and CFO of Illumina we sought their views on the
U Grail acquisition following the European Commission’s decision to block the deal,
a decision which Illumina is looking to appeal. Illumina continues to believe that the
merger is the best option going forward. Of the three pillars of future growth CEO
deSouza outlined in June, diagnostics and data appear to be underpinned by Illumina
gaining access to the population genomics data from the Grail acquisition. That being
said, deSouza noted that Illumina walked away from the 2019 acquisition of PacBio
following regulatory concerns and will act pragmatically again if necessary. We also
enquired about healthcare systems readiness for Grail’s pan-cancer screening by
liquid biopsy as while there are obvious benefits for patients, employers and insurers,
there is still a need for Grail to focus on educating medical practitioners.

Joby Aviation June We met the Founder and CEO of Joby Aviation at our Edinburgh office. We received
U an update on the company’s progress for electric vertical take-off and landing
(eVOTL), including certification, manufacturing, and commercialisation.

November We had a video call with the CFO of electric vertical take-off and landing aircraft
U company Joby Aviation. We discussed the company’s progress in certifying its
aircraft with the Federal Aviation Administration (FAA) in the US and explored the
new milestones that Joby has disclosed in its quarterly reports. We also discussed
the company’s plan for commercialising its service, including new partnerships with
airlines and companies providing ground infrastructure.

M3 March In a call with Japanese healthcare company M3’s Head of Diseases and Investor
U Relations, we explored the company’s plans to leverage its relationships with key
stakeholders in the healthcare system to help it address specific disease areas.
Through its own business divisions, joint ventures, and investment in innovative
start-ups, M3 is driving social impact by solving challenges for pharmaceutical
companies and healthcare professionals.
38 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

M3 (continued) April We had a call with the CEO of M3 USA & Europe to help further our understanding
U of this division which accounts for around a fifth of group sales for the Japanese
medical platform company. It is a collection of autonomous businesses that are all
trying to make healthcare systems a bit more efficient in different ways, whether
it be through physician recruitment, clinical research or market research. This
decentralised approach helps attract and retain people with entrepreneurial flair
who are incentivised to deliver profit growth, both organically and through mergers
and acquisitions.

September M3’s long term strategy (aka ‘the Sagrada Familia’) is an ambitious plan to create
U efficiencies through applying digital technologies within the global healthcare
system. We had a helpful discussion on progress towards this and the runway for
growth with M3’s President and founder, Itaru Tanimura, in Tokyo. International
expansion is the most ambitious part of the strategy, and with recent acquisitions
expanding M3’s reach in Spain and Latin America, it is progressing well and now
comprises a quarter of sales. It was clear that Tanimura-san remains focused on
building a company for the long term and is very focused on talent development
and fostering a culture to deliver on the company’s strategy. We also used the visit
to Japan to meet with several other companies, experts in local ESG dynamics and
industry bodies which all aid our understanding of M3’s business.

MercadoLibre September We met with the VP of Strategies at Latin American ecommerce company
U MercadoLibre’s office in Brazil. We discussed the company’s investment and
strategies in logistics and fulfilment which will not only strengthen their moat, but
also allow the company to serve lower-income customers and expand into lower-
ticket items more profitably. The good news is that MercadoLibre doesn’t believe
that it will be CAPEX-intensive because its logistics strategy is very software and
data driven, with 1,500 developers working on solving the optimisation for logistics.
We also discussed the fintech business and while MercadoLibre’s non-performing
loans are optically high, we now understand that the underlying underwriting is
actually improving rapidly. Finally, it was an opportunity to hear the company talk
about what it does from both the board and organisational perspectives to avoid
complacency and continue to look out for potential disruption.

October We had a video call with the CFO of MercadoLibre to discuss the company’s
U ESG and sustainability policies. We covered a wide range of topics, including
the company’s effort to reduce its environmental impact by adopting electric
vehicles and low-carbon fuel for its logistics fleet, as well as the company’s
effort to increase its social impact through the provision of accessible financial
services to more merchants and consumers. We learnt that nearly 1 million families
derive their primary income through MercadoLibre. At times, we noted the CFO’s
frustration that obtaining buy-in from different stakeholders on sustainability can be
challenging, but he was also optimistic that the direction of travel is positive, due
to the rising awareness of sustainability and MercadoLibre’s own effort to educate
on this topic. We ended the call by providing our support and encouragement on
MercadoLibre’s sustainability journey.
 39

MercadoLibre December MercadoLibre contacted us to introduce and gain feedback on its new disclosure
(continued) I format called an ‘ESG Tear Sheet’. We conveyed that MercadoLibre’s long-term
approach naturally harmonises with an authentic consideration of material ESG
issues. We also explained that environmental and social considerations need to
be forward-looking; as a company grows, so too do its environmental and social
consequences, both positively and negatively. Therefore, it makes sense from a
strategic perspective to start addressing these early and be open about where
tensions exist to help build understanding and trust. Companies are under pressure
to conform to various interpretations of ESG, but we encouraged MercadoLibre
to do what it believes is most important for the company, its ecosystem and
stakeholders, even if that deviates from standard ESG practices.

December We met with the CFO and the lead sustainability manager to learn more about the
I company’s climate and energy strategies. The main focus covered (a) logistics
and fleet decarbonisation, (b) opportunities to influence producers and consumers
to more sustainable choices, (c) forestry projects, and (d) progress towards full
science-based emissions targets. The detailed nature of the conversation and the
discussion of senior management motivation and intent left us impressed with
the depth of the company’s thinking. We agreed to meet again to give specific
feedback on elements of the vehicle transition plan and to learn more about offsets
and the regional impact of emerging physical risks.

Moderna January Following the 2021 publication of the World Health Organisation’s (WHO) roadmap to
R achieving global Covid-19 vaccination in 2022, we wanted to discuss the feasibility
of the recommendations the roadmap outlines for vaccine manufacturers with
Moderna. We wanted to emphasise our continued support for steps that will improve
global vaccine access. We spoke with the company’s General Counsel about this in
January. We are confident that Moderna is meeting the recommendations and spirit
of the WHO’s roadmap in most areas. On this call, we requested more detail about its
manufacturing ambitions on the African continent and encouraged further ambition
in its Global Public Health strategy. More public announcements are likely on this in
the near future, but we see these as very positive developments which will improve
access to mRNA vaccines and therapeutics over the long term. There are, however,
elements of the WHO’s roadmap that Moderna does not believe it can meet in full,
such as the rapid transfer of know-how and technology. We continue to build our
understanding of this very complex area of global vaccine equity and will continue
to encourage appropriate steps towards achieving this at Moderna.

March We had a call with Moderna’s CEO Stéphane Bancel to discuss the significant
R change and progress at Moderna over the last two years as well as his priorities
for the future given there is a great deal more to Moderna than its preventative
Covid-19 vaccine. We also explored how the company is thinking about pricing, its
ambitions to further its AI capabilities and the reasons behind choosing Kenya for
its African manufacturing facility.

April Ahead of the AGM we had a call with Moderna’s Investor Relations and Associate
I General Counsel to discuss the agenda, give our view and to clarify management’s
position on certain agenda items, including a shareholder proposal on technology
transfer. We discussed executive pay and how the board will develop over the
next few years. We took the opportunity to emphasise that bolstering the audit
committee should be a particular focus given the scale of change to the company’s
financial position and profile and pressed them on the high non-audit fees provided
to its auditor, which has the potential to undermine auditor independence.
However, we are satisfied this is down to extraordinary circumstances and will be
rectified next year.
40 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Moderna April We had a meeting with the Chair of Moderna’s Board of Directors to discuss the
(continued) U agenda of the AGM and to request more information on Moderna’s approach
towards supporting vaccine equity. This was one of several meetings we held with
various parties in advance of voting on a shareholder proposal to commission a
third-party report analysing the feasibility of transferring intellectual property and
know-how to facilitate the production of Covid-19 vaccine doses by manufacturers
in low- and middle-income countries. This meeting reinforced our comfort that
Moderna’s leadership has deeply explored the feasibility of safely licensing its
technology and to whom, in consultation with stakeholders, such as the WHO.
It also helped us understand that the main bottlenecks to ending the pandemic
are no longer in vaccine supply, but in last mile distribution. We share the goal of
supporting vaccine equity and will continue to encourage Moderna’s efforts to
achieve this, in particular its plan to manufacture vaccines in Kenya, in addition to
engaging with stakeholders in global health.

April On a call with Moderna’s Investor Relations we explored the shifting dynamics
U of the global vaccine market which, since the pandemic, has become a much
more attractive market for Moderna. The speed of approvals and the renewed
focus of public health systems on vaccines have fundamentally changed. We also
discussed innovations in vaccine delivery mechanisms and Moderna’s partnership
with genetic editing company Metagenomi. Combining gene editing tools with
Moderna’s expertise in lipid nanoparticle delivery and mRNA has the potential to
treat an increasing number of genetic diseases.

May We had a brief call with Investor Relations to discuss the sudden departure of the
U newly appointed CFO due to an internal investigation at his prior place of work.
We appreciated the company reaching out to provide some context around these
unfortunate circumstances. He had only been in the role for one day and the
retiring CFO agreed to return until a permanent replacement is found.

June We met with Moderna’s Investor Relations to exchange ideas and perspectives
R as Moderna continues to develop its stated target to reach net zero across its
value chain emissions by 2030. While Moderna’s direct footprint is relatively low,
it can have tangible impact in the creation of sustainable manufacturing and by
demonstrating demand for sustainable chemicals. More intangible is its public
voice and clear awareness in its R&D programme (patterns of disease will shift
with the climate). We had a good discussion across these issues, including some
sharing of practice around reporting, emissions boundaries and physical risk
disclosure. Moderna intends to add to its climate disclosures and provide detail on
its pathway to net zero. We will hope to make a positive contribution by connecting
the company with others and sharing our knowledge.

November Moderna’s CEO visited our Edinburgh office and we further explored the potential for
U mRNA, how Moderna prioritises its efforts and its competitive edge. The CEO talked
us through his ambitions to provide a range of respiratory vaccines and, ultimately,
a combination vaccine to protect against flu, Covid-19, and Respiratory Syncytial
Virus (RSV), which infects the lungs and breathing passages. mRNA has tremendous
potential to transform healthcare systems – vaccines are a great example: guesswork
could be removed if vaccines can be designed for specific strains in specific regions
to provide protection against viruses such as flu. Moderna adopts a systematic
approach to prioritising resource allocation, considering the scale of the problem
and the complexity of the disease. Ambitions don’t stop there – vaccines against
latent viruses such as HIV and CMV are in the pipeline, along with treatments for rare
diseases and a personalised cancer vaccine. The CEO thinks Moderna stands out
among other companies in the mRNA space for its focus, long termism, portfolio
approach to risk and for being digitally native.
 41

NIBE February We met with NIBE’s CEO and CFO to discuss the long-term demand for heat
U pumps in Europe which, while it is expected to be strong and enduring, does face
challenges including consumer awareness and education as well as cost and
space for installation. We explored NIBE’s decision not to go into air-to-air heat
pumps – they are not central heating systems and pricing is unattractive – and the
merits of its three main heat hump technologies – ground source, air-to-water, and
exhaust air. As the world increasingly moves to a model whereby emitters pay for
their pollution, the cost of using fossil fuels to heat one’s home will rise, making
heat pumps an increasingly attractive option over the long term.

June We visited the company’s headquarters in Sweden to meet with the CFO and tour
R one of its production facilities. The CFO was optimistic about the growth outlook for
heat pumps and it was encouraging to hear about the investment the company is
making to increase capacity to meet the growing demand for its products. Supply
chain challenges were evident on the factory tour, and the company is working on
addressing these challenges through engineering as well as product sourcing.

Northvolt October We attended battery manufacturer Northvolt’s online investor advisory update in
R October 2022. The meeting provided a comprehensive update from management
on its operational and R&D progress and outlined clear momentum in scaling
Northvolt’s battery manufacturing operations. The macro-environment presents
difficulties, but Northvolt remains focused on execution and has strengthened
its customer partnerships. A key milestone was the first delivery of its lithium-ion
battery cells to a customer in May. The presentation reinforced the numerous
sustainability benefits of Northvolt’s vertical integration compared to the outsourcing
model that is common among its peers and provided an indication of future
ambitions for the company.

Novozymes February We had a call with the Danish enzymes manufacturer Novozymes’s CEO, Ester
U Baiget, and the VP of Strategy & Business Transformation, Amy Byrick. We
discussed how Novozymes can develop its core competencies in enzymes in order
to expand into new, but related, areas; how its competitive edge will develop as
this strategy unfolds; and how to overcome the bottlenecks the company faces.

March Following the Novozymes AGM in which we supported all proposals, we held a call
I with Investor Relations to communicate a few aspects of company governance
that we believe should be addressed in the future. In particular, we noted the
long auditor tenure, queried the classification of board members and requested
improved disclosure of executive remuneration targets. We continue to monitor
these areas which are important for the long-term governance of the company.

June We visited senior management to hear their perspective on the changes that
U the CEO has been implementing as the company becomes more commercially
focused. Through meetings with the Chief Science Officer and the Head of Strategy
and Business Transformation we learnt more about the changes in structures,
processes and culture to bring greater focus and agility to R&D. Changes include
the commercial and R&D teams working more closely and collaborating more
closely with customers to understand their needs.

August We had a video call with the Executive VP of Agriculture & Industrial Biosolutions
U and the VP of Agriculture Marketing & Strategy. The purpose of the call was
to learn more about enzyme producer Novozyme's strategy for its agriculture
business and its competitive advantage. Supported by regulators and changing
customer attitudes, the financial and impact opportunities in this space are large.
There remain substantial scientific and technical barriers to overcome, however
Novozyme's experience in fermentation, its extensive databank of microbes and
enzymes, and its reputation puts the company in a good position.
42 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Novozymes November The CFO visited our Edinburgh office and in our discussion, we explored the
(continued) U company’s pricing power in an inflationary backdrop and the long-term opportunity
for its biologic products. Novozymes is being bolder with its pricing, something
which started a few years ago and is clearly helpful in an inflationary environment.
Its products help customers increase yields and yet are a small part of overall
costs which means most customers have been comfortable accepting structural
price increases. The long-term opportunity for Novozymes is unchanged and is
based upon the continued adoption of biologics across a range of industries to
help customers do more with less in a more environmentally sustainable way. In
particular, the scope to increase penetration of biologics in detergents and other
household care products in emerging markets is exciting, as is the opportunity in
the agricultural sector. With several start-ups emerging in the latter, we encouraged
the company to be bold in investing so it can capitalise on its ability to produce
products at scale, something which remains rather unique.

December We held a meeting with the management team of Novozymes in Edinburgh to

U begin to assess what its merger with Chr. Hansen will mean for our investment
and impact objectives. The two companies will combine to create a new company.
The CEO sees this merger as an acceleration of Novozymes' goal to be a biotech
powerhouse, not a change in strategy. We heard that Novozymes drove the deal
as management sees great synergies in health, nutrition and bioagriculture, and
its customers have responded very well. The merger will result in significant cost
efficiencies, with R&D spend protected. We explored how governance of the new
entity will work and the cultural transformation required and were encouraged by
CEO Baiget’s thought and energy on the latter. We are conscious of the risks that
often trouble acquirers in big deals and so we will be watching developments very
closely and seeking more clarity on the governance of the new company.

Nu Holdings September We met with the co-founder and CEO of Nu, Cristina Junqueira as well as Investor
R Relations in Nu’s office in Brazil. We explored the culture of the business which
centers on providing exceptional customer service. We believe that Nu’s customer
service is a real differentiation point versus other players in the market, especially
incumbent banks. We also discussed Nu’s underwriting model and its use of data
to allow the company to serve lower-income customers profitably, something
which incumbents still struggle to do. There is good data suggesting that the lower
the income bracket that Nu target, the greater the data advantage asymmetry.
This is very important to enable financial inclusion in Brazil. We also discussed the
more difficult macro environment, and Nu is willing to slow its lending business,
suggesting appropriately prudent lending practices.

September During a visit to Brazil, we held two meetings with the Head of Impact and ESG
R at Nu. This proved an excellent opportunity to explore the many initiatives that
the company is working on to expand and measure its social impact, but also
to improve its environmental and social footprint. Nu is particularly focused
on supporting its staff diversity, which is important in a country with very high
inequalities. We took the opportunity to emphasise what we believe are priorities
for Nu to achieve positive impact over the coming years. Crucial will be responsible
lending practices and striking the right balance between profitability and providing
affordable services, particularly for lower-income groups that make up a large part
of its customer base. Our second meeting involved a discussion with academics
and the financial inclusion team from Brazil’s Central Bank where we explored
the findings of proprietary research that we commissioned into financial inclusion
among lower income groups in Brazil. We believe this research revealed important
areas for us, Nu, and other financial services providers in Brazil to focus on.
 43

Nu Holdings November Following our previous engagements with Brazilian bank Nu on financial inclusion,
(continued) I we were invited to speak at the company’s Financial Inclusion strategy day. We
presented to several managers from across the company and gave a shareholders’
perspective on why we believe that protecting and improving the financial health
of its lower-income customers will be beneficial in the long run. In the Q&A session
we also shared some experiences from around the world which may be helpful for
Nu as it considers expanding its impact in this area. We look forward to the launch
of its financial inclusion strategy in the coming months.

Ørsted February The offshore wind industry is continuing to gain momentum as an increasing
U number of governments integrate offshore wind into their long-term energy
roadmap. This growth has inevitably attracted competition. We met with Ørsted’s
Investor Relations, Rasmus Hærvig, to discuss how the company is dealing with
intensifying competition. We were reassured by Ørsted’s discipline on generating
economic returns rather than chasing growth. In the long term, Ørsted’s scale and
expertise should help it to better manage risk and generate value. Beyond offshore
wind, we also discussed the opportunities in green hydrogen, where we have noted
positive progress from the industry and Ørsted.

May We joined a group call with Ørsted’s CEO and Deputy CEO. We discussed how the
U renewable energy company is responding to supply chain disruptions and the more
challenging macro-economic environment. Ørsted is confident that its experience
in offshore wind and its large Engineering Procurement and Construction team
help the company to better manage the challenging environment. More than half
of Ørsted’s revenues are inflation-protected, and despite rising interest rates, there
is still healthy demand from investors who want to finance Ørsted’s wind farms.
We also discussed Ørsted’s approach to attracting and retaining talent. We were
reassured by proactive initiatives on areas such as diversity and inclusion, as well
as the fact that voluntary turnover continues to be below 10 per cent.

Peloton March We had a series of calls with Peloton, meeting the former CEO, CFO, new CEO,
U and members of the board to help further our understanding of past actions
that have been unhelpful to the investment case and to gain insight into how the
company plans to rectify the situation. The call with the recently appointed CEO
was particularly enlightening. His ambition and intended approach to help Peloton
capitalise on the growth opportunity was encouraging to hear, but we will continue
to monitor the situation at the company.

September We had a call with the CEO to discuss recent changes to the board and the
U management team. The changes were intentional and are part of Barry McCarthy's
bid to upskill the management team and ensure there is alignment over long-term
ambitions. It was also an opportunity to discuss how the company grows the business
with an investment approach that is in keeping with cash management objectives.

Safaricom May We had a video call with Kenyan telecoms company Safaricom’s CEO and CFO.
U We discussed Safaricom’s continuing effort to build a more comprehensive
financial services business building on the success of its MPesa payments
service. We also discussed Safaricom’s new initiatives, including those around
agriculture, education, and health. Finally, we discussed the ongoing progress of
expansion into Ethiopia.
44 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Sartorius June As well as speaking to Investor Relations, we had a separate meeting with the
U combined Chairman/CEO of laboratory equipment manufacturer Sartorius,
Joachim Kreuzburg, who has been on the Sartorius board for almost twenty years.
We discussed the growth profile of the business, now Covid-related revenues are
expected to subside. We noted that there may still be an ‘air pocket’ of orders
from the pandemic but were encouraged by the company’s diversified and durable
growth across regions and business areas. We also discussed how Sartorius is
working to make the biologic manufacturing process more efficient, in particular
through automation and data analytics.

June We spoke to Sartorius’s Investor Relations to understand the current adoption of

U single-use equipment in biologics manufacturing. We learnt that the penetration of
single-use equipment in large-scale biologics manufacturing is still quite low, which
is encouraging for Sartorius’s growth runway. We also asked about governance and
succession planning, as the Sartorius family shareholding is due to evolve in 2028.
While this is an ongoing conversation, our questions did not reveal any red flags and
we were reassured that Sartorius remains well-managed and long term in its thinking.

November We met Sartorius in our Edinburgh office, where we discussed inflation. Sartorius
U has strong pricing power as its products are ingrained in biological manufacturing
processes and we were reassured that Sartorius retains strong relationships with
customers, who appreciate that price increases are to defend rather than expand
margins. We also asked for an update on Sartorius’ China business, which counts for
just over 10 per cent of sales. Sartorius explained that it has a local-for-local approach
in China, which should help contain the risk of any deterioration in trade relations.

Shopify May We had a video call with Tobias Lütke, Shopify’s founder and CEO. The conversation
U was wide-ranging, but we spent a significant part of the meeting discussing
Shopify’s culture – especially as the company goes fully remote – and its strategy
for fulfilment. During the meeting, Lütke’s commitment to addressing the pain
points of entrepreneurs is clear, as well as his goal for Shopify to focus on creating
value rather than extracting value.

May We had a call with Robert Ashe, Lead Independent Director and Chair of the
U Nominating and Corporate Governance Committee, and Gail Goodman, Chair of
the Compensation and Talent Management Committee and member of the Audit
Committee at Shopify, to learn more about the proposed introduction of a new
Founder share class. Through the conversation we learnt more about the intentions
behind the proposal and the thoroughness of process behind making it and, in the
end, decided to support the resolution at the AGM.
 45

Shopify December During our meeting with the COO and President of ecommerce platform Shopify,
(continued) U we sought to learn more about the company’s work culture in a challenging
operating environment. This follows significant management changes and
reductions in headcount. The company has now fully embraced a ‘work from
anywhere’ model, which has enabled the hiring of talent that was previously
unwilling to relocate to Ottawa, such as the incoming CFO Jeff Hoffmeister.
Recognising that a different operating environment can require different skill
sets, Shopify requires executives to requalify for their job every year (including
the founder CEO), with the understanding that they should step aside if they’re
no longer the right person. The company also thinks of ‘tours of duty’, whereby
executives are given roughly five years to achieve specific goals. As such,
executive turnover reflects skillsets more than cultural problems. Turning to
Shopify’s 10 per cent headcount reduction, the President noted that senior
management tried to handle this responsibly and empathetically, with a call from
one’s manager, a generous severance package, and help to find a new role.
Additionally, senior management has increased transparency and town halls to
ensure that remaining employees feel secure, and a new slider compensation
scheme has been introduced to enable employees to choose their preferred split
between cash and share-based compensation. We were encouraged by examples
of Shopify’s adaptability and focus on the company’s long-term vision and culture.
We will continue to monitor and engage on these issues.

Spiber October We were privileged to have a long meeting with the Founder, Chief Marketing Office
R and a board member of Japanese sustainable material company Spiber, during
their trip to identify business opportunities within the European fashion industry.
The meeting was a great opportunity to meet members of the management team
in person for the first time, hear how the team managed through the pandemic and
sample its incredibly soft Brewed Protein™ fibres. We also learnt of recent and
upcoming developments around Spiber scaling its production, new facilities and
potential products in the future.

Teladoc June We visited the CEO, Jason Gorevic, at Teladoc's office in New York, where we
R discussed how the business operated during the Covid-19 pandemic, the broad
opportunity for telehealth and how the company can capture the most value from
moving into the mental health space. Visiting the office also gave us an opportunity
to experience the culture of the company and build a relationship with the CEO.

July We met Teladoc’s CEO, Jason Gorevic at our Edinburgh office to discuss some of
U the challenges the company is facing, from rising competition to macro uncertainties
to some execution hiccups. While it was encouraging that Teladoc’s vision remained
the same, we think it might take a while for the company to convince its large
customers of the benefits of whole-person virtual care. We remain shareholders for
now but our conviction is lower, and we need to see more evidence of the success
of Teladoc’s whole person care to differentiate from competitors.

Tesla February On a call with Investor Relations we discussed how Tesla is navigating short-term
U cell supply constraints and how it continues to invest and innovate to remain
competitive. While excitement for new models has recently been less than the
rapacious demand Tesla has experienced in recent years, the company has major
levers it can pull, such as adjustments to leasing and pricing models, which means
it is well placed to generate new demand if required. On the technology side, we
also explored how Tesla's product portfolio will be aligned with autonomy and
the further developments planned to overcome some of the challenges of Full
Self Driving (FSD) technology. The timing for FSD to become mass market is very
uncertain but Tesla remains at the forefront of commercialising this technology.
46 Engaging for Positive Change –
Company Conversations

Company engagement (continued)

Tesla March We engaged with Tesla to learn more about its decision to open a showroom in
(continued) U Xinjiang and a recent legal case against the company alleging racist behaviour
at its Fremont factory. We received helpful clarity regarding Tesla's operations in
Xinjiang where we are cognisant of human rights concerns involving the Uyghur
population. The company explained that the new site is in fact a service centre for
existing customers. Tesla has been investing in its responsible supply chain team
and has been completing upstream audits of suppliers. Reassuringly, all work
done so far shows no sign of forced labour. The second half of our discussion
focused on the Department of Fair Employment and Housing case against Tesla
alleging black workers experienced pervasive racism. There are a few similar cases
outstanding against the company which raise concerns. While it is difficult to
prejudge the outcome of these processes, we have seen over consecutive years
that Tesla is increasing its investment in human capital management and employee
engagement. This includes better terms and conditions for staff, improving health
and safety statistics, and a more diverse employee base across the organisation.
We will continue to monitor these issues going forward, including raising them with
the board ahead of this year's AGM.

April We spoke to Investor Relations to develop our understanding of a number of

U different areas of the business. Through the call, we gained a better understanding
of Tesla's path towards full autonomy driving; the long-term pricing strategy and
what it takes to become mass market; and ambitions for battery recycling.

December We had a video call with Tesla’s Chair Robyn Denholm to discuss Elon Musk’s
U acquisition of Twitter, and its impact on Tesla. Denholm argued that there is a
discrepancy between how the acquisition is reported in the media and the reality,
and that Musk’s focus and intensity on Tesla remain unchanged. We explored a
range of topics during our call, including Musk’s time allocation between Tesla
and various other projects, the depth of Tesla’s management team beyond Musk,
reports of Tesla employees working at Twitter, and the reputational risks to Tesla’s
brand caused by Musk’s activities. The call was reassuring on our most pressing
concerns, but there are areas that we will continue to monitor.

TSMC August We had a wide-ranging discussion with the Investor Relations at semiconductor
U foundry TSMC. We discussed the company’s thoughts on the long-term growth
opportunities, including the prospects for continued market share expansion.
We also discussed TSMC’s capital allocation, including the planned expansion
in the US and Japan. Finally, we learnt more about TSMC’s decarbonisation
strategy and expressed our support.

November We met with TSMC’s CFO in our Edinburgh office. We discussed TSMC’s future
U technology roadmap, particularly the importance that TSMC places on developing
efficient packaging technology and reducing cost per transistor. We discussed
TSMC’s overseas expansion plans with the company aiming to have around
20 per cent production capacity overseas in five years’ time. While there are cultural
barriers to overcome in setting up new facilities outside Taiwan, TSMC is confident
that customers will value the additional manufacturing flexibility it will be able to
offer. We touched on succession planning for the Chairman and Vice Chairman
and learned that conversations with the board are ongoing, which was reassuring.
We expressed our continued support and encouragement for TSMC to establish
sustainable water management and decarbonised energy supply in Taiwan.
 47

Umicore January In a meeting with Umicore's chair, Thomas Leysen, we sought to better understand
I the reasons for the structure of the new CEO's remuneration plan and to
emphasise our support for investments that will support Umicore's growth and
positive impact. We covered both of these areas and more on the call and it was
helpful to hear about recent strategic developments and governance changes
from the chair, who has been involved with Umicore for over 20 years. Disclosure
of the details of the CEO's remuneration plan represents an improvement on
previous years, but we also advocated for amendments in the future that might
better reward outperformance. This meeting will help us better consider how to
vote on the remuneration plan at the AGM in April, and we continue to monitor and
encourage transparency, alignment and long-termism in the plan in the future.

February February We met with Umicore's new CEO Mathias Miedreich to better understand
R his ambitions for the company. His vast experience with original equipment
manufacturer relationships was evident on this call where we discussed the different
business models that Umicore has adopted for different customers, including VW,
BMW and the large battery producers. Why do customers choose Umicore?
The CEO believes this is down to technology, the quality of supply and the security
of supply. Sustainability is also a key reason which has been evident with Umicore
sourcing of cobalt over the last decade and will be very important for nickel sourcing
in the coming years. We also touched on Umicore's global expansion plans,
potential future businesses and its recycling technology which should play a key
role in the sustainability of the electric vehicle market. We expect to hear more
about Umicore's long-term ambitions at the capital markets day in June.

June In 2021, Umicore set ambitious sustainability targets, including to become net zero
I by 2035, and this meeting with the ESG team was an opportunity to follow up on
the company's progress. We also wanted to understand Umicore’s approach and
emphasise our support for minimising its impact on biodiversity. We discussed
the array of initiatives that Umicore is considering to achieve its targets, including
carbon capture and storage, renewable power purchase agreements and offsetting.
We received a commitment to minimise the use of the latter and also to finalise its
Scope 3 targets in 2022. Umicore is still in the process of working out how best
to measure its relationship with biodiversity, but it is actively considering more
advanced methods to integrate biodiversity considerations in decision making.
We will continue to monitor and support Umicore's environmental efforts over the
next few years, and we also plan to have a further call to discuss human rights
within Umicore's supply chain, another very important topic, later this year.

June We attended materials and recycling company Umicore’s Capital Market Day in
U London, where the company laid out its long-term strategy up to 2030. We learnt more
about Umicore’s plan for battery materials, including how it intends to incorporate
circularity through battery recycling and its plan to expand into North America. We
also heard more about the company’s ESG strategy, including its approach to reduce
Scope 3 emissions intensity in-line with Science Based Targets initiative (SBTi).
48

Company engagement (continued)

Umicore August We had a video call with the CEO and Investor Relations at Umicore. We used the
U opportunity to ask follow-up questions from the Capital Market Day in the summer.
We explored Umicore’s role in the battery material supply chain, its bargaining power
relative to automotive OEMs and battery makers, and its capacity expansion plans.

November As Baillie Gifford is Umicore’s largest shareholder we were asked to discuss with its
I Investor Relations and Sustainability team what ESG matters we believe to be the
important for the company. We emphasised that we invest in Umicore on behalf of
our clients for the environmental impact that its core products and metals recycling
will enable, and for its leading approach to minerals sourcing. We were pleased
that Umicore has improved its operational environment footprint by committing
to the initiative, SBTi and announcing an ambitious target to reduce its Scope 3
emissions by working with suppliers. We also encouraged more reporting on
Umicore’s product impact, and more disclosure on its supply chain and approach
to biodiversity. We will continue to monitor how the company is approaching
key ESG topics and advocate for responsible business practices.

Xylem January We met with the Chief Sustainability Officer and Investor Relations for a discussion
I ahead of the water infrastructure company’s AGM. We learnt more about how
the company integrates sustainability into executive compensation and the
reasoning behind the use of third-party ratings as ESG metrics for the CEO
and CSO. We conveyed our preference for an internal metric to be developed,
tied to the sustainability goals set out, and were pleased to hear that these are
being developed alongside a process of obtaining external assurance for the
sustainability goals. We explained our general approach of opposing compensation
plans which contain a metric where vesting begins at the 25th percentile of
performance versus a peer group, which is the case with Xylem’s relative total
shareholder return (RTSR) metric under the long-term plan, as we view this as
under-ambitious. We also indicated our support for the greater use of options in
compensations as it tries to attract IT and software talent.
 49

Industry engagement
Deep Transitions Ongoing We continued our involvement in the Deep Transitions Global Investor Panel. The Deep
Project Transitions Futures Project is an interdisciplinary research project that seeks to develop
a new signature investment strategy for transformation, termed ‘Transformative
Investment’, which places sustainability and socio-technical system change at its
core. In March this year we discussed tools that will help investors consider how
future global systems will change and to identify potential investment opportunities
within these. In November, we participated in the launch of the Deep Transitions’
Transformative Investment Philosophy, marking the end of Phase 2 of the project.
The next phase will focus on disseminating this philosophy and putting it into practice.

Global Impact Ongoing The GIIN is a non-profit organisation dedicated to increasing the scale and
Investors Network effectiveness of impact investing around the world. In June, we attended the GIIN
(GIIN) Listed Equities Working Group meeting to discuss the proposed requirements of a
Theory of Change for listed equity impact funds. Like many other attendees on the
call, we suggested that reporting on company-level Theories of Change was far more
necessary than at the fund-level. In the second half of the year, we responded to
the consultation for the GIIN’s draft guidance for listed equity impact funds. Overall,
we were pleased to see that the GIIN is setting a high standard for these funds but
noted that some of the requirements, particularly regarding investor contribution
which were to be set out in the philosophy and process document of the fund, were
too prescriptive and did not appreciate the relationship between investment funds
and investee companies. We also noted the absence of a requirement to report on
impact, which we believe to be an important feature of impact investing. This year,
we also attended the GIIN Impact Forum, the world’s largest in-person gathering of
impact professionals. It brought together over 1,500 attendees from 65+ countries to
discuss some of the most pressing issues. From the urgency of the climate crisis and
the role that investors can play in addressing it, to the latest industry developments
in areas such as monitoring, measurement and reporting.

The Investment Ongoing Following the publication of the UK Financial Conduct Authority’s (FCA) discussion
Association (IA) paper, the main purpose of the Investment Association group is to feed into the
response to the FCA’s upcoming consultation on the UK’s Sustainable Disclosure
Regulation and investment labels. As a member of the group, we discussed the
IA’s current impact investing definition, how to make the definition work for public
markets, and in particular, what additionality might look like in this context. We also
provided final comments on the IA’s position on impact investing paper which will
be fed back to the FCA. In August we provided a response to the IA on the GIIN’s
draft guidance on impact investing (in addition to directly responding to the GIIN as
detailed above). In January 2023, we will have an opportunity to feed back to the FCA
directly on the limitations of the ‘Sustainable Impact’ category as it currently stands.

International Ongoing We joined Baillie Gifford colleagues on the advisory group for the ISSB, which
Sustainability has been recently incorporated under IFRS, with the mandate of creating and
Standards Board developing sustainability-related financial reporting standards to better meet
(ISSB) investors’ needs for sustainability reporting. This is in some ways a continuation
of the work we began as part of the Impact Management Group advisory group.
We attended a full day event in London, aimed at recapping on 2022 progress and
providing feedback on the 2023 plan. We suspect much of 2023 will be focused on
improving awareness of the emerging standards among companies and investors.

Japanese FSA September During a visit to Japan, we met with the Japanese regulator to discuss the best
approach to impact investing and how to avoid greenwashing. We learnt about the
increased interest in sustainable investment among Japanese investors following
Prime Minister Suga’s focus on net zero by 2050, and the challenges this brings
with an increase in ESG and impact funds potentially leading to greenwashing.
We shared our views on the importance of clear objectives and rigorous impact
reporting as well as the role of engagement with both portfolio companies and
industry bodies to establish and encourage best practice.
50 Proxy voting

Proxy voting
We voted on all resolutions proposed at AGMs or EGMs for the holdings in Keystone Positive Change
Investment Trust. Our internal ESG Services Team, in consultation with investment teams, undertakes
all voting. As well as summarising all voting, we show the detail of our voting record where we have
voted against resolutions proposed by management, and the votes (for and against) resolutions by
shareholders.

Keystone Positive Change

Investment Trust proxy voting record

For: 95.3%

Against: 4.2%

Abstain: 0.5%

Management votes Number of meetings

47
For: 97.4%
Number of shareholder
Against: 2.1% resolutions supported

2
Abstain: 0.5%

Source: Baillie Gifford & Co.

 51

Resolutions voted for

Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Withhold
(%)
Tesla Inc AGM 7 Shareholder 46.5 52.6 0.9 Fail We supported the resolution
04/08/22 requesting additional disclosure on
the company’s efforts to address
harassment and discrimination
in the workplace. We believe
quantitative disclosure would help
us understand and monitor the
company’s efforts.

Tesla Inc AGM 9 Shareholder 37.5 61.6 0.9 Fail We supported the resolution
04/08/22 requesting a report on the impact
of using mandatory arbitration
in line with our voting approach
in 2020 and 2021. We believe
increased transparency would
help us better understand the
company’s use of the practice and
any implications for workplace
practices and culture.
52 Proxy voting

Resolutions voted against

Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Result
withheld
(%)
Abiomed AGM 2 Management 36.1 63.9 Fail We opposed executive
10/08/22 compensation due to concerns
with the structure of the
plan including short term
performance targets within the
long term plan.

Bank Rakyat AGM 4 Management 92.0 8.0 Pass We opposed the remuneration
Indonesia 01/03/22 for the board as independent
directors receive incentive-based
pay which we believe could
compromise their objectivity.

Bank Rakyat AGM 8 Management 70.7 29.3 Pass We opposed the changes to the
Indonesia 01/03/22 composition of the company’s
management due to lack of
disclosure of the changes.

Deere AGM 5 Shareholder 17.4 82.1 0.5 Fail We opposed a shareholder

23/02/22 resolution requesting the
company lower the threshold
for calling a special meeting.
We believe that the current
thresholds are appropriate
and balance the rights of
shareholders while protecting
the company from short term
and opportunistic shareholders.

Discovery AGM NB1.1 Management 89.5 10.5 Pass We opposed the remuneration
01/12/22 policy due to concerns with
the lack of long term
performance measures.

Discovery AGM NB1.2 Management 90.4 9.6 Pass We opposed the implementation
01/12/22 of the remuneration policy due
to concerns with the lack of long
term performance measures.

Ecolab AGM 4 Shareholder 10.1 89.9 Fail We opposed a shareholder

05/05/22 proposal regarding lowering
the threshold for shareholders
to call a special meeting as we
believe the company’s current
arrangements are sufficient.
 53

Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Result
withheld
(%)
Illumina AGM 4 Shareholder 40.4 57.3 2.3 Fail We opposed a shareholder
26/05/22 resolution requesting the
company to change its articles
of association to provide
shareholders the right to call
a special meeting when they
own more than 15 per cent of
share capital. We supported
management’s alternate proposal
for setting the threshold at 25
per cent, as we agree that this
threshold strikes an appropriate
balance between facilitating
shareholder rights and protecting
the company’s and shareholders’
long-term interests.

Moderna AGM 4 Shareholder 23.8 76.2 Fail We opposed the resolution to

28/04/22 commission a third party report
analysing the feasibility of
transferring intellectual property.
Following significant engagement
with management and the chair
of the board we have comfort
that Moderna’s leadership has
deeply explored the feasibility of
safely licensing its technology
and to whom, in consultation
with stakeholders, such as the
WHO. As such we do not believe
that there is a requirement for a
third-party report into this issue.
We believe the steps Moderna
is taking to expand access to
mRNA technologies in the future
and ensure the world is better
prepared for future pandemics,
as outlined it its Proxy Statement,
are commendable and we believe
that opposing this resolution
will better allow management
to focus on these, as well as its
extensive product pipeline.
54 Proxy voting

Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Result
withheld
(%)
Tesla AGM 10 Shareholder 34.3 64.7 1 Fail We opposed the resolution
04/08/22 requesting a report on how the
company’s corporate lobbying
is aligned with the Paris Climate
Agreement. Given Tesla’s core
mission is to accelerate the
world’s transition to sustainable
energy and its entire business
strategy is in alignment with the
Paris Agreement, we believe
additional disclosures would
be a burdensome with no real
benefit to shareholders.

Tesla AGM 11 Shareholder 32.1 64.2 3.7 Fail We opposed the resolution
04/08/22 requesting the company adopt a
policy on freedom of association
and collective bargaining. These
rights are enshrined in the
National Labor Relations Act and
like any US company, Tesla must
comply with the law and this is
not a matter for company policy.

Tesla AGM 12 Shareholder 10.4 88.2 1.4 Fail We opposed the resolution
04/08/22 requesting a report on the
company’s policies will go on
to eradicate child labour in
their battery supply chain by
2025. We think the company’s
efforts have already been very
comprehensive in this area
and view another report as
unnecessary.

Tesla AGM 13 Shareholder 35.1 64 0.9 Fail We opposed the resolution

04/08/22 requesting a report on the
company’s water risk exposure.
The company already provides
detailed disclosure and has
stated its intention to continue to
increase the level of disclosure
in future Impact Reports.

Tesla AGM 6 Shareholder 50.9 47.9 1.3 Pass We opposed the resolution
04/08/22 requesting the company adopt
proxy access. We believe the
resolution as stated would
not be in the best interests of
shareholders and could leave
the company open to very small
shareholders, with a very specific
agenda, to target the company.
 55

Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Result
withheld
(%)
Tesla AGM 8 Shareholder 9.6 89.1 1.3 Fail We opposed the resolution
04/08/22 requesting a report on board
diversity. We continue to have
good discussions with the
company on board refreshment
and have confidence in their
approach to identify quality
directors.

Xylem AGM 3 Management 87.5 12.5 Pass We opposed the executive

12/05/22 compensation policy as we
do not believe the performance
conditions are sufficiently
stretching.

Resolutions abstained
Company Meeting Res Proposed For Against Abstain/ Result Reason for vote
type by (%) (%) Withhold
(%)
Umicore AGM/ A.8.2 Management We abstained on the election of
EGM a director as he is a shareholder
representative and sits on the
Audit Committee, which we
believe should be comprised
entirely of independent directors.

Resolutions withheld
We did not withhold on any resolutions during the period.

Please note the voting results data set out above has been provided to us by a third party. No member of the Baillie Gifford group (being Baillie Gifford & Co,
Baillie Gifford Overseas Limited and any of their subsidiaries, subsidiary undertakings, holding companies and affiliates from time to time) is responsible for
the accuracy or completeness of information supplied by third parties.
Totals may not add due to rounding.
56
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