Methodology Change  | RAFI Fundamental Emerging Markets Carbon Neutral Exclusion Screened  Index | Effective Date 11/05/2023

Today, on 28/04/2023, Solactive announces the following changes to the methodology of the following indices (the ‘Indices’). The changes to the methodology will become effective on 11/05/2023.

Rationale for Methodology Change

The current ESG screening of the Indices specifically excludes companies with involvement in a number of business activities and industries. This strategy is not restrictive enough from an ESG standpoint and should be layered with an additional filter using ESG scores. The additional filter based on ESG scores would appeal to the index objective and enhance the current ESG strategy.

Changes to the Index Guideline

The following changes will be implemented in the following points of the Index Guideline:

In section 3.3, an additional sub-section “3.3.1 – ESG Exclusion” is added to include an additional ESG screening as an enhancement to the current ESG strategy. The current ESG screening that is based only on a company-level exclusion list will then become the second step of the screening process in sub-section 3.3.2.

From (old version):

“3.3 RAFI Fundamental Emerging Markets Carbon Neutral Exclusion Screened Index Construction

The index starts with RAFI Fundamental Emerging Markets as described in Section 2.5.2 and at each rebalance tilts index constituent weights in order to reduce the overall index carbon intensity as described in Section 2.1 to roughly match the carbon intensity of the market. Baseline exclusions are applied to the index prior to the application of the carbon intensity reduction methodology.

3.3.1 Baseline Exclusions

A list of company level exclusions is applied at each quarterly rebalance. Exclusions are provided semi-annually in April and October by a third-party pension organization. The following companies are excluded:

• Companies that have a verified involvement in controversial weapons.
• Companies that derive at least 5% of their revenue from military equipment and services.
• Companies that derive at least 5% of their revenue from tobacco production
• Companies that derive at least 5% of their revenue from exploration or production of fossil fuels, unless the company has a transition plan that is considered compatible with the Paris accord.
• Companies that have a verified failure to respect established international norms.”

To (new version):

“3.3 RAFI Fundamental Emerging Markets Carbon Neutral Exclusion Screened Index Construction

The index starts with RAFI Fundamental Emerging Markets as described in Section 2.5 and at each rebalance tilts index constituent weights in order to reduce the overall index carbon intensity as described in Section 3.1 to roughly match the carbon intensity of the market. ESG exclusions and company level exclusions are applied to the index prior to the application of the carbon intensity reduction methodology.

3.3.1     ESG Exclusions

For each Emerging Markets region, companies are sorted in descending order by their Environmental (E), Social (S) and Governance (G) scores respectively. Companies which belong in the bottom 15% by fundamental weight as calculated in Section 2.3, for each respective E, S and G categorization are excluded.

E, S and G signals are supplied by ISS, a third party ESG data and ratings provider. Information regarding ISS’ methodology can be found here: https://www.issgovernance.com/esg/. ISS assigns each company in its universe a score of A+ to D- (corresponding to a numeric scale of 1-4). Companies in the RAFI Global Equity Universe that do not have a rating as a result of being outside of ISS’ ratings universe are assigned a score of zero. For the purpose of index construction, eligible companies are ranked using ISS raw scores for E, S and G respectively. Final E, S, and G scores are determined for each company based on the percentile ranking of each companies’ raw score within each region.

3.3.2     Company Level Exclusions

A list of company level exclusions is applied at each quarterly rebalance. Exclusions are provided semi-annually in April and October by a third party pension organization. The following companies are excluded:

• Companies that have a verified involvement in controversial weapons.
• Companies that derive at least 5% of their revenue from military equipment and services.
• Companies that derive at least 5% of their revenue from tobacco production
• Companies that derive at least 5% of their revenue from exploration or production of fossil fuels, unless the company has a transition plan that is considered compatible with the Paris accord.
• Companies that have a verified failure to respect established international norms.”

Defined terms used in this announcement, but not defined herein, have the meaning assigned to them in the respective index guideline of the Affected Indices. The amended version of the index guideline will be available on the effective date.