ESG update on 2016 to date

SKAGEN has since 2002 incorporated ESG in the investment process, enabling the portfolio managers to make informed decisions and get a more complete picture of the risks and opportunities related to individual investments. Amongst other things, they are better able to identify any challenges before they escalate into events that could potentially reduce the value of the funds ' investments.

Given this increased focus on ESG, it is gratifying to see that we are receiving good feedback from both external service providers and clients. The results of our 2015 UN supported Principles for Responsible Investment assessment shows we compare well with other fund managers, something also reflected in Morningstar's ranking of how well Norwegian fund managers perform in terms of ESG. SKAGEN took a shared third place on this Morningstar list.

Voting

When we launched our new web site last year, we also added a new online solution from Institutional Shareholder Services (ISS), which is the world's leading provider of corporate governance solutions. Our unit holders can now find out how the funds have voted in the companies they own the day after the votes have been cast. An explanation is available in the instances where we have voted against the company's management on general meeting ballot items.

During the first half of this year, there were a total of 199 votable shareholder meetings, with as many as 2488 votable items on the agenda. SKAGEN voted on 2375 of these items, which equals 95 percent of the votable items. This is an increase from the 86 percent voted on at the end of 2015. In the meetings where we voted, 4.8 percent of the votes were against the company's management on one or more items on the agenda.

SKAGEN has, in line with our policy, typically voted against items related to the issuance of equity without preemptive rights for existing shareholders, excessive management remuneration without links to results and the election of board members who are not deemed sufficiently independent.

During the first half of 2016, we have also been involved in proxy battles between activist investors and the management of Stock Spirits and Omega Protein respectively – both holdings in SKAGEN Focus. In both cases, the equity fund supported the addition of two new board members, and ended up on the winning side.

Engagement

During the year, SKAGEN has also engaged with the companies in our portfolios. Our portfolio managers regularly speak with management in the companies where we are invested. We record the cases where we have had direct contact on a specific issue – regardless of how big or small the issue.

So far this year, SKAGEN has engaged with nine companies on various issues of differing magnitude. We have continued to follow up on the substantial engagement we had last year with the UK-based security company, G4S. In addition, we have continued our dialogue with Carlsberg and Heidelberg Cement.

One new case this year has been with Banco do Estado do Rio Grande do Sul, which for years has run the salary payments for government employees in the State of Rio Grande Do Sul. The state, which is the largest shareholder in the bank with a 57 percent stake, announced in January that they would start charging for the right to run the business. The Brazilian Shareholder Association sent a letter voicing concerns over smaller shareholders ' rights in this matter. The portfolio managers of SKAGEN Kon-Tiki contacted the bank about similar concerns, and sent a separate letter to management where we stated our view. The fund also supported the election of an independent member to the board in April.

Following the decision made by the Norwegian Government Pension Fund Global to exclude large coal-related producers and users in April this year, we have seen an increase in queries as to what SKAGEN will now do. We have so far not followed the government pension fund's example and included coal in our ESG Policy. What we have done, however, is engage with the SKAGEN Global investment Xcel Energy, which was on the government pension fund's exclusion list. We continuously strive to improve both our ESG policy and its implementation, keeping in mind that we have a fiduciary duty to all our unit holders in all the markets in which we operate.

Our ESG Policy has proved to be a useful tool for managing ESG-related matters in the portfolios. SKAGEN believes that investing responsibly pays off in the long term because it helps us make better-informed investment decisions. In all our funds, all investments are screened, evaluated against and reviewed against our policy in terms of their sustainability.