As engaged shareholders and bondholders in our portfolio companies and issuers, we seek to foster their sustainability—and profitability. We also strive to be good global neighbors and citizens. We believe economic progress requires a healthy environment where people can live and work and a broad middle class supporting economic growth and social inclusion. Economic progress is also supported by transparent corporate governance structures that can help attract domestic and international capital. Working diligently to help our clients reach their financial goals, we are mindful of the role of capital in shaping the world we want to live in.

Our clients' assets are tied to their goals and aspirations. As a fiduciary, we have a legal and ethical obligation to act in our clients' best interest. Fostering a client-centric culture begins with understanding clients' goals and creating investment solutions designed to support those goals over the long term. It continues with maintaining and enforcing a strict Conflicts Policy and Code of Ethics for all employees. In addition, we strive to align employee incentives with clients' interests over the long term. Accordingly, our portfolio managers are:

• Encouraged to invest their own capital in our strategies so they are invested alongside clients
• Compensated based on the long-term performance of the strategies they manage and their adherence to the stated objectives of their respective investment strategies

To help manage risk across our strategies, we take a disciplined approach to risk management. Our Chief Investment Officer oversees key investment team functions through regular meetings and one-on-one interaction with portfolio managers and investment group leaders. Portfolio managers understand material risks in portfolios through in-depth analysis and proprietary research into our investee companies, including ESG.

We also have a Corporate Governance and Stewardship Sub-Committee charged with implementing Matthews Asia’s Responsible Investment activities, active ownership principles, stewardship, and ESG integration. Together with the Proxy Working Group, this group also oversees the proxy voting process.

Paul Matthews, founder of Matthews Asia, started our firm with a strong belief in the long-term growth potential of Asia. He fostered a culture of carefully considering corporate governance structures as part of our due diligence process. A deep appreciation of corporate governance is built into our DNA. Good governance is important in all markets where we invest, and especially so in emerging and frontier markets. When assessing management quality, we look at how well a company articulates and executes its long-term vision. We believe high-quality businesses run by capable and principled managers are healthier and more sustainable. Our business-quality assessment also includes determining the ability of a company to grow sales and profits with attractive returns over the long term.

We require trust, transparency and accountability from our investee companies and entities. As part of our proprietary investment research, we typically consider a company's:

• Track record for allocating capital
• Board quality, diversity and composition
• Alignment of incentives for controlling shareholders, minority shareholders and management
• History of protecting minority stakeholder rights, especially in a crisis
• Ability to attract and retain talent
• Exposure to regulatory, market and other risks
• Management of material environmental and social risk
• Potential for successfully entering new areas of business by leveraging existing strengths

To develop a 360-degree view of investee companies, our due diligence process includes meetings with one or more of the following stakeholders: company management, employees, customers, suppliers, research and civic organizations. This helps us gauge the strength and quality of management teams, as well as the viability of a company's business model. We may also consider a company's potential for successfully entering new areas of business by leveraging existing strengths. In markets that are rapidly growing and still inherently inefficient, we believe identifying companies with strong corporate governance is essential to helping manage our clients' investments.

Environmental, social and governance (ESG) factors are often synonymous with long-term investing. Accordingly, ESG factors tend to be highly compatible with our bottom-up, fundamental investment process. We see at least two potential benefits to investing with a long-term view. Issuers focused on the long term may be better equipped to identity future growth opportunities ahead of competitors. This helps issuers invest in research and development, production and marketing resources ahead of time and proactively create new growth opportunities or benefit significantly when those opportunities materialize. In addition, companies that look ahead can scan the horizon for long-term threats to their businesses. These forward-looking issuers can potentially invest in mitigating strategies and address material risks to their long-term prospects more effectively.

Corporate governance is the ESG factor we look at most closely across all our portfolios to identify risks. We believe governance influences social and environmental factors, providing a starting point for analysis. While some of Matthews Asia’s strategies employ negative screens, poor corporate governance may exclude an issuer from consideration for our portfolios. In addition, our portfolios are typically not constrained by sector or industry, and often look quite different from our benchmarks. In-depth knowledge of local markets helps us to evaluate and prioritize ESG-related risks according to their potential impact on portfolios. In some of our portfolios, ESG considerations may rank high. In other portfolios, ESG considerations may be simply one set of inputs among many that we consider as part of our fundamental research.

In addition to identifying risks, ESG factors can help identify opportunities. As incomes rise across markets where we invest, domestic consumers will naturally seek to improve the quality of their lives, creating opportunities for businesses alert to this trend. Governments across Asia, as well as broader emerging markets, are also focused on improving the quality of their economic growth, which may involve closer regulation of environmental and social issues.

We believe the developing world’s response to ESG challenges will have a major impact on businesses worldwide. Companies that ignore consumer preferences may miss out on business opportunities, while those that ignore regulatory risks may face higher regulatory costs and risk damaging their brands. In contrast, companies with strong or improving ESG track records may find it easier to attract capital from increasingly sophisticated, institutional capital market participants.

Through our fundamental approach to investment research, we get to know our portfolio holdings very well. In some cases, we may consider issuers that faced ESG challenges in the past but are now improving. Inflection points, such as companies taking positive steps to improve their corporate governance structures, can present attractive buying opportunities. Thus, we are open to investing in technologies and industries that can help bridge the gap toward better ESG solutions, but only after careful research, analysis and due diligence.

Active ownership and stewardship form the cornerstone of our commitment to foster strong corporate governance. With a long history of investing in Asia and emerging markets, we are often a significant shareholder in company registries. Each year, we have roughly 2,700 touchpoints throughout Asia and across broader emerging markets, which can include company, supplier, customer and other stakeholder meetings. With a large team that has a strong background in Asia and emerging markets, we are fluent in the region's languages and familiar with its cultures. Respectful of diverse cultural landscapes, we take an in-person approach to company engagement, which we find more productive than filing shareholder resolutions. We also take a thoughtful and conscientious approach to voting proxies on behalf of our clients.