DOMÉSTICOS

The Scottish Widows Environmental Investor Fund aims to invest in companies, mainly in the UK, which show a positive commitment to the protection and preservation of the natural environment. The fund's investment universe is drawn from companies benchmarked against a broad range of ethical criteria. The Scottish Widows Ethical Fund has negative exclusion criteria which exclude companies from the portfolio. It also has other positive and negative criteria which are taken into account in determining if a company is acceptable for the portfolio. This is done by assigning weightings or scores to the criteria and companies with the highest scores are preferred. In general positives must outweigh negatives for each company in the portfolio. The fund's policy has been approved by the Trustees, the Conservation Foundation Fund Committee and Scottish Widows. Changes to the policy would be the decision of the Committee.

Ethical Policy

Positive investment criteria Negative investment criteria

The fund will actively seek to invest in the following: ƒ companies which use sustainably managed forests to

supply wood as raw materia

ƒ companies which have taken steps to stop the use of CFCs in aerosols or foam packaging, or which have controlled CFC emissions from refrigeration plants ƒ companies which have taken initiatives in the

following areas; recycled paper or cardboard,

bottlebanks/refundable glass bottles, recycling waste, biodegradable packaging, use of reverse vending machines

ƒ companies which demonstrate leadership in use of derelict inner city land, screening of sites,

reinstatement of the environment after extraction or developmentcompanies that have achieved a significant reduction in fuel bills by efficient energy conservation, and those who are involved in

producing goods involving efficient use of energy i.e. insulation materials or solar heating this could range from the use of lead free petrol in company cars to companies involved in the production and or retail of more energy efficient or more environmentally friendly transport

ƒ companies involved in control of emissions of nitrates, oil, chemicals etc. into waterways or the atmosphere; control use of bleaches for paper products; water or sewage treatments

ƒ companies which actively avoid the use of endangered species as raw materials for e.g.

jewellery or cosmetics. companies which take steps to preserve the natural habitats of flora and fauna threatened by developments of that company and others

ƒ companies involved in growing, producing or retailing organic produce (to Soil Association standard). ƒ companies which actively avoid production or use of

drugs or hormones used to promote yields through intensive farming

ƒ companies which sponsor environmental projects or have evidence of comprehensive employee health and safety initiatives

Voting & Engagement

Engagement

Policy overview

SWIP engagement policy applies to investments held in both ethical and non-ethical funds. SWIP's engagement policy ‘reflects the view that co-operation not conflict is most likely to promote a successful outcome for the company and its investors ’ . SWIP’s Corporate Governance Policy and Policy on Shareholder Engagement set out SWIP’s approach to voting and engagement (see www.swip.com). Where concerns are considered serious SWIP may meet with the Chairman, with non-executive directors or raise issues with the company’s advisors. SWIP maintains good

relationships with other investment managers and representative bodies within the fund management industry. This enables them, when necessary, to work with other institutional shareholders to press for change.

Methods of engagement

SWIP communicates with company management and investor relations teams through regular meetings, telephone conferences and site visits at least once a year. Group strategy, SRI criteria and corporate governance issues are some of the topics that are discussed. SWIP also take part in collective discussions with other shareholders on necessary issues.

Examples of recent engagement

SWIP recently engaged with management at Unilever regarding a waste disposal issue at their Indian subsidiary Hindustan Lever. Communications with the company included a requirement to improve waste disposal standards and to pay compensation to local villagers that were affected.

What further steps taken when engagement is considered unsuccessful? -

Voting

Policy overview:

SWIPs normal practice is to vote on all resolutions put forward at company meetings and to vote all shares in its control where it has authority to do this. SWIPs stated policy is to support management as long as it is satisfied with its corporate governance stance and with its business conduct. SWIP will abstain in a resolution when it is unhappy with some elements of it or where a company has committed to review or address SWIPs concerns within a sepcified timescale. SWIP will vote against a resolution when a matter of significance is unresolved or if it is against their clients' best interests. When voting in the UK SWIP considers advice from external research providers but we does not follow the recommendations of any voting service. Each resolution at a UK company meeting is considered on a case-by- case basis by SWIP’s Corporate Governance Director. When voting at overseas meetings SWIP generally follow the recommendations of ISS (Institutional Shareholder Services) with a few specific adjustments, unless a fund manager intervenes.

Are voting practices disclosed?

Voting practices are not publicy disclosed but voting reports are available to clients on request. Examples of recent voting activity

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Transparency

*(These are voluntary guidelines for ethical funds which aim to increase accountability to consumers. The guidelines cover 6 key areas including investment criteria, research process and the fund’s approach to engagement & voting - see www.eurosif.org)

Signatory to the Eurosif Transparency Guidelines?* No

Research

Research resources used In-house, EIRIS, other external

Scottish Widows Ethical Fund