2nd quarter 2023: our active stewardship illustrated

Before Carmignac’s decision to invest in the March 2021 and July 2021 SLBs, the
company was included in our ESG Exclusion List. Under our Exclusion Policy³, we exclude power generators which do not follow the minimum thresholds set out in the policy. However, we reserve the right to make exceptions, and when the first sustainability-linked bond (SLB) was issued, we decided to remove the company from our ESG exclusion list and become one of its creditors. This decision was made on the basis of:

• the company’s historical power generation intensity (gCO2/kWh) data
  trends;

• its sustainability commitments, especially the phase out of existing lignite
  plants by 2023 and the full exit of lignite by 2028;

• the issuance of the two SLBs and their ambitious Sustainability Performance
  Targets (SPT).

In March 2023, the company announced it had failed to reach the SPT of its March
2021 SLB. This will trigger an interest rate step-up of 50bps from the next coupon
date in October 2023. The SPT was a reduction of 40% of scope 1 emissions at year-end 2022. The company only achieved a 36% reduction. This event triggered an
engagement with the company to understand the reasons for the SPT miss, as well as
the implications for its climate strategy and targets.

Through managed portfolios, Carmignac also holds another SLB issued by the
company in July 2021. This has an SPT of a 57% reduction in scope 1 emissions by
December 2023 compared to the 2019 level.

We held a call with a company investor relations representative and the treasurer.

The company explained to us the exceptional circumstances which resulted in the
March 2021 SLB SPT miss. The energy crisis triggered because of the war in Ukraine
resulted in an increase in lignite-fired generation to safeguard the security of supply in the electricity system of Greece.

As a result of our substantial bond holdings and in light of these explanations, we
encouraged the company to publicly set out its strategy for meeting the objective of
the second SLB before the maturity date of December 2023.
We also asked the company to provide more clarity to investors on its revised
decommissioning plan. This included information on its compatibility with its 2040
net-zero emissions goal as well as its commitment to eliminating lignite use by 2028.
We indicated our support regarding the company’s commitment to have certified
science-based targets.

We will continue to engage with the company on this topic.

As part of our ESG strategy and in line with our engagement focus on the topic of
climate change, we monitor this oil & gas company’s climate strategy. At the 2022
Annual General Meeting (AGM), we voted against the company’s sustainability and
climate transition plan⁵. In 2023, and before the 2023 AGM, scheduled for 26 May, Carmignac held two meetings with the company.

The first engagement with the company was an in-person meeting with the CEO
held in April. The follow-up engagement was a call with the company’s investor
relations representatives held in May, before the AMG.

These two meetings were an opportunity for Carmignac to provide feedback to the
company on its climate strategy. We acknowledged the company’s efforts
regarding its performance on a range of sustainability issues and the maturing of
its energy transition strategy.
We highlight below the key points of discussion with the company:

• Responsibility for indirect CO2 emissions (Scope 3);
• Evolution of low-carbon energies capex;
• Use of offsetting mechanisms instead of technology to reduce carbon
  emissions directly;
• Articulation of environmental benefits of the gas expansion strategy using
  forward looking scenario analysis against other viable technologies.

As a result, Carmignac voted against the company’s 2023 sustainability & climate
progress report⁶. We remain concerned that the company’s report is missing material information to enable us to understand and compare its energy
transition strategy with peers. Also, we think there is insufficient appetite by
management to acknowledge the company’s responsibility for its products’ emissions. We think this stance will not be tenable in the medium to long term
from a legal perspective.

We also voted against a shareholder-led resolution⁷ to align its existing 2030 reduction targets covering the greenhouse gas (GHG) emissions of the use of its energy products (Scope 3) with the goal of the Paris Climate Agreement target⁸. We do not believe, at present, that the proposed action is an effective method of addressing climate change and could have unintended negative consequences, such as forcing the sale of assets to less sustainable stewards, regressive price impacts and increasing reliance upon states with geo-political risk. As the energy industry shifts towards an increased supply of clean energy, it may prove appropriate to set a target for indirect CO2 emissions (Scope 3) in future, but at present we feel it would be unsuccessful on a global scale.

Approximately 11% of shareholders voted against the company’s report and 30%
supported the shareholder-led resolution⁹.

We will continue our engagement with the company on the topic.

For more information on our voting decision at the AGM, please consult our voting
disclosure site¹⁰.