COLUMBIATHREADNEEDLE.COM

May 2016

ETHICAL INVESTMENT GUIDELINESTHREADNEEDLE ETHICAL UK EQUITY FUND

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Ethical Investment Guidelines – Threadneedle Ethical UK Equity Fund

INTRODUCTIONThis document is a guide to the Ethical Investment Guidelines that Threadneedle Investment Services Limited (“Columbia Threadneedle EMEA” or “the Fund Manager”) follows in managing the Threadneedle Ethical UK Equity Fund (the “Fund”).

The ethical criteria outlined in this document are specific to the Threadneedle Ethical UK Equity Fund, and may be amended from time-to-time. These criteria are in addition to Columbia Threadneedle’s standard responsible investment policies and practices, which apply to all funds that it operates, details of which can be found in our Governance and Responsible Investment Policy at columbiathreadneedle.com.

Section 1 provides the ethical criteria for excluding companies from the investment universe

Section 2 explains criteria and positive areas of focus for the selection of investments

Section 3 details the fund’s application of the criteria

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Ethical Investment Guidelines – Threadneedle Ethical UK Equity Fund

METHODOLOGY1. ETHICAL EXCLUSION SCREENING This aims to exclude companies that are unable to

satisfy the Fund’s ethical restrictions. The ethical restrictions are derived from the methodology of the MSCI Socially Responsible Investment (SRI) Index, the Fund’s reference index (set out in detail in section 3 below), but may vary slightly in some instances.

Our process is designed to avoid investing in companies involved in the business activities outlined below:

Alcohol nn All companies that generate 5% or more revenue from producing alcoholic beverages

nn Companies that generate 15% of revenue or more from the sale of alcoholic beverages

Gambling nn All companies that generate 5% or more in revenue from gambling products or services

Tobacco nn All companies that produce tobacco and any company that generates 15% of revenue or more from selling or distributing tobacco products

Weaponsnn All controversial weapons manufacturers (controversial is any revenue from cluster munitions, land mine, biochemical weapon and depleted uranium weapons). The MSCI SRI Index Methodology takes a similar view to the fund manager’s standard controversial weapons policy stated in its Governance and Responsible Investment Policy, which can be found at columbiathreadneedle.com

nn Any companies that generate 5% or more in revenue from the manufacture of other weapons or from weapon support systems or retailing of weapons

Nuclear Power nn All companies that derive 15% or more in revenue from nuclear related products or nuclear energy production

Adult Entertainment nn All companies that generate more than 5% in revenue from adult entertainment related products

GeneticallyModifiedOrganisms(GMO)nn Any companies that are producing genetically modified seeds, crops and genetically modified organisms for agricultural use of human consumption

2. POSITIVE INCLUSION AND SELECTION Within the universe of qualifying investments,

i.e. those that have passed the ethical exclusion screening, the framework against which the Fund Manager will assess its investments may include the extent to which companies exhibit the following two characteristics:

nn evidence appropriate environmental, social and corporate governance (ESG) standards and practices within their sectors AND/OR;

nn have the potential and are seeking to develop products, services and practices that contribute towards a better future (such as in education, clean technology, healthcare, safety and security).

Please read below for further details of each of the characteristics.

2.1 Evidence appropriate environmental, social and corporate governance (ESG) standards and practice within their sectors

This section describes the criteria by which the Fund Manager will assess the ESG performance of the companies. The fund takes a largely sector-relative approach, aiming to invest in the relatively most responsible companies in any given sector. The tools by which the Fund Manager will assess companies include the use of an externally sourced research provider along with a range of other inputs.

The MSCI SRI Index is underpinned by MSCI ESG research methodology, which evaluates corporate ESG performance. This includes evaluating companies against core industry criteria, and ability to attain a minimum score across the criteria. A minimum threshold should be reached for a company to be eligible for investment. The MSCI ESG research basic methodology document is available at: www.msci.com/esg-integration.

The MSCI SRI Index methodology also uses a range of international norms and guidelines (e.g. the International Labor Organisation, UN Global

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Ethical Investment Guidelines – Threadneedle Ethical UK Equity Fund

Compact, Organisation for Economic Co-operation and Development (OECD) Guidelines). Companies that are the subject of, or are associated with, severe controversy or failing to comply with these norms or guidelines, will be excluded. Severe controversies are deemed to be where there are repeated failings in several areas, usually leading to litigation and regulatory penalties or loss of licence to operate.

To illustrate the types of issues that may be considered, we reference commonly accepted Environmental, Social and Governance (ESG) criteria. These are derived from the UN Global Compact and OECD Guidelines for Multinational Enterprises indicators, which are universal guidelines for good corporate practices. The context and further information can be found in our ESG reference document available at www.columbiathreadneedle.com.

Human rights indicators Human rights are particularly relevant in companies

with large supply chains using a lot of human capital such as retailer and consumer product producers as well as in companies with significant footprint on the local community such as companies whose businesses involve the extraction of raw materials from the ground (known as extractive companies). The types of issues that we consider include:

nn Gender equality and diversity programmes

nn Child labour, bonded labour and other inhumane conditions in the supply chain

nn The extent of community involvement in the context of the business environment;

Labour relations Labour relations play an important role in, for

example, the extractive industries, companies with history of governmental influence such as telecommunications, and for companies that have a focus on innovation, research and development, and need highly skilled labour. This is also a core component for companies that have a large number of employees. Good health and safety practices and strong employee training programmes improve productivity and employee retention. The types of issues that we consider include:

nn Lost time injury rate and whether the company’s fatality rate is declining or flat (if already at a low level)

nn Training hours per employee

nn Relationship with unions

Environmental management indicators Environmental management is particularly relevant

for companies in the industrial sectors and companies that use a lot of natural resources as input to their processes, for example capital goods and raw materials that undergo an extractive process or chemicals production. As a minimum, most of these companies are subject to climate change regulation but other factors are considered in assessing investment potential such as water and waste management. The types of issues we consider include:

nn The existence of an environmental management programme

nn Certification against standards such as ISO 14001

nn Publishing environmental consumption figures and trends (e.g. greenhouse gases, waste, energy and water)

Good governance, anti-bribery and corruption

Good governance, or the way a company is run, is an important consideration when investing in any company. Our Corporate Governance and Proxy Voting Principles set out the detailed issues we consider as good corporate governance. This is available on our website columbiathreadneedle.com and on request.

Additional issues such as anti-bribery and corruption are related areas specifically highlighted as part of the UN Global Compact, while the Organisation for Economic Co-operation and Development (OECD) guidelines for multi-national enterprises emphasise marketing practices and protection of consumer interests, involvement in anti-competitive practices, and how the company is generally accountable to external stakeholders. Increasingly, this also encompasses concerns on taxation. The types of issues we consider include:

nn The existence of appropriate internal controls through an audit system, with board level oversight

nn Level of board independence, quality and diversity

nn Remuneration incentives and its implication for risk-taking/appropriate inclusion of ESG elements

nn Litigation actions against the company

nn Taxation scandals

nn Data and IT security and systems

nn Accounting quality

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Ethical Investment Guidelines – Threadneedle Ethical UK Equity Fund

2.2 Have the potential and are seeking to develop products, services and practices that contribute towards a better future

This element is particularly related to finding companies within the investable universe which actively contribute to sustainable growth by manufacturing products and solutions for a better future. As we consider the opportunities and solutions that companies can achieve, we pay particular attention to companies’ approach and ability to innovate. For example, development of new science and technologies to adapt to climate change, enable greater food production, or new methods of transportation are all relevant in a world of resource

scarcity and changing operating contexts. Indicators the Fund Manager will typically look for include:

nn Where appropriate, revenue is derived from “sustainability” products, as illustrated in the “Themes of interest” table below

nn Percentage of sales devoted to research and development

nnMethod by which ESG factors are included in capital allocation

nn Where appropriate, the extent to which environmental or social goals have been reached through these products (e.g. lower carbon, more people reached in terms of access to medicines or education)

Table 1. Themes of Interest that have a benefit to society

Theme Investment thesis Investment considerations

Environment Environmental solutions are needed for a more resource constrained future and the basic services of water and waste is a core component of any society

nn Water managementnn Pollution controlnn Waste and recyclingnn Resource efficient materialsnn Forestry

Climate/energy transition

The world is in an energy transition and opportunities exist across the value chain including companies that support traditional oil & gas to improve, those that provide direct solutions for low-carbon energy and those that are adapting to enable consumers to live a lower-carbon future

nn Energy efficiency nn Renewable energynn Energy transition technologies and sourcesnn Electric vehiclesnn Adaptation solutionsnn Flood & catastrophe insurance

Health/wellbeing Health and wellbeing are recognised as a necessity for a productive workforce and development. Disadvantaged communities and those with rare diseases are less able to access adequate care.

nn Access to healthcarenn Underserved treatment and disease areasnn Disease preventionnn Obesitynn Global pandemicsnn Food producers nn Agricultural companies

Safety and security Safety and security are rising threats in a world of terrorism and instability. People are at risk both from physical attacks and cyber security. Weapons are not the answer but security solutions such as monitoring and greater ability to prevent attacks is desired.

nn Data and consumer protection nn Inspection and certificationnn Safety technology and processesnn Innovative IT solutions and information management

Demographics Ageing populations demand the need for greater management of wealth to manage the economic risk. A focus on greater productivity in turn includes shifts in the workforce related to inclusive representation of women and a need for flow of labour across borders.

nn An aging workforce requires good pension management and new solutionsnn Life and health insurancenn Elderly care or servicesnn Infrastructure development

Education Education is the foundation for respect and providing opportunities for people to grow and develop.

nn A growing need for access to education and new forms of teaching

Communities Communities encompass the trend of urbanisation as well as rising inequality. Connecting local communities, protecting them and empowering them will be a more sustainable way for spreading wealth and reducing social inequality. Small to medium sized enterprises fall into the category of those that often serve distinct local markets and generate local wealth.

nn Social inequality and addressing social value creation in operations nn Enabling SME lending and growthnn Social housingnn Connecting local communities

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Ethical Investment Guidelines – Threadneedle Ethical UK Equity Fund

3. APPLICATION OF THE ETHICAL CRITERIA AND ADDITIONAL CONSIDERATIONS

Below are further details on additional considerations and engagement.

Reference indexThe Fund will be managed by reference to the MSCI SRI Index, which consists of a universe of companies that have met the MSCI ESG research methodology criteria, further details of which can be found on their website msci.com/esg-integration.

Positions outside the index universeThe Fund Manager may, in certain circumstances, invest in companies that are not included in this reference index. There are three instances where this may occur.

nn The Fund Manager may have engaged with a company and believes there is additional information that merits further evaluation, which is not currently taken into consideration in the assessment by the external provider. A company that has committed to concrete improvements within a reasonable timeframe may be considered for investment by the Fund Manager but if improvements do not materialise during the agreed timeframe, the Fund Manager may disinvest.

nn The company may have a particularly strong sustainability outcome (see further details under section 2.2 above), and only exhibit some of the desired corporate, environmental, social and governance practices. However, in this event, the company would also need to commit to concrete improvements within a reasonable timeframe and if these do not materialise in the agreed timeframe, the Fund Manager may disinvest.

nn The Fund Manager may wish to invest in a company that is not covered by the external assessment and as such per definition; this company will not be captured in the reference index. In this case, the companies will be investigated and assessed to the best ability of the Fund Manager investment team against its responsible and ethical criteria using third party sources, publicly available information and information from active engagement.

DisinvestmentsIt is possible that a company is invested and ceases to be eligible, due to failing the ethical exclusion screening. If this happens, the Fund Manager will usually disinvest.

If an included company passes the ethical exclusion screening but is no longer exhibiting the positive ESG aspects, the Fund Manager will usually engage with the company to understand the reason for change. A company that has committed to concrete improvements within a reasonable timeframe may be considered for continued investment by the Fund Manager but if improvements do not materialise during the agreed timeframe, the Fund Manager may disinvest.

ReportingIn addition to regulatory reporting, an annual review of the application of the Fund’s Ethical Investment Guidelines will be available for investors.

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Important information: Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Threadneedle Specialist Investment Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UCITS scheme. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports, which can be obtained free of charge on request, and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French, German, Portuguese, Italian, Spanish, Dutch (no Dutch Prospectus), Swedish (for the Key Investor Information Document only) and free of charge on request from Columbia Threadneedle Investments, Client Services department, PO Box 10033, Chelmsford, Essex CM99 2AL This document is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating to an investment with Columbia Threadneedle Investments. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. References to Columbia Threadneedle or ‘The fund manager’ should be read as Threadneedle Investment Services Limited (TISL) Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com Issued 05.16 | J24387