Dreyfus Funds

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    Funds Group: Dreyfus Funds

    Management Company: Dreyfus Corporation; Sub-adviser:  Newton Investment Management (North America) Limited, an affiliate of Dreyfus Corp.

    Funds Affected:  The Dreyfus Sustainable U.S. Equity Fund (formerly Dreyfus Third Century Fund)

    Principal Sustainable Investment Management Strategy: Exclusions, ESG Integration, Shareholder Engagement and Proxy Voting

    Summary:
    To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities (or derivative instruments with similar economic characteristics) of U.S. companies that demonstrate attractive investment attributes and sustainable business practices and have no material unresolvable environmental, social and governance (ESG) issues.

    A company is considered to engage in “sustainable business practices” if the company engages in such practices in an economic sense (i.e., the durability of the company’s strategy, operations and finances), and takes appropriate account of material externalities caused by or affecting its business. The sub-adviser also may invest in companies where it believes it can promote sustainable business practices through ongoing company engagement and active proxy voting.

    The fund invests principally in common stocks. The fund may invest in the stocks of companies with any market capitalization, but focuses on companies with market capitalizations of $5 billion or more at the time of purchase. The fund may invest up to 20% of its net assets in the stocks of foreign companies, including up to 10% of its net assets in the securities of issuers in emerging market countries, that demonstrate attractive investment attributes and sustainable business practices and have no material unresolvable ESG issues.

    The sub-adviser seeks attractively-priced companies (determined using both quantitative and qualitative fundamental analysis) with good products, strong management and strategic direction that have adopted, or are making progress towards, a sustainable business approach. These are companies that the sub-adviser believes should benefit from favorable long-term trends. The sub-adviser uses an investment process that combines investment themes with fundamental research and analysis to select stocks for the fund’s portfolio.

    Investment Themes. Part of the sub-adviser’s investment philosophy is the belief that no company, market or economy can be considered in isolation; each must be understood within a broader context. Therefore, the firm’s global industry analysts and responsible investment team begin their process by considering the context provided by a series of macroeconomic investment themes, which are designed to define the broader social, financial and political environment as a framework for understanding events, trends and competitive pressures worldwide.

    Fundamental Research and Analysis. The sub-adviser next conducts rigorous fundamental analysis of the competitive position and valuation of potential investments, systematically integrating the consideration of ESG issues through its proprietary ESG quality review, which is designed to ensure that the firm appropriately accounts for any material ESG issues of the company in determining the potential investment’s valuation.

    Ongoing ESG Monitoring and Engagement. In addition to investing in companies that the sub-adviser believes are “sustainable” after applying the fundamental analysis and ESG quality review rating, the firm may invest in companies where it believes it can promote sustainable business practices through ongoing company engagement and active proxy voting consistent with the sub-adviser’s investment and engagement priorities. The sub-adviser monitors the fund’s entire portfolio for emerging ESG controversies and issues and periodically reviews each company’s ESG quality rating. This integrated investment process is intended to ensure that ESG issues are taken into account and that the fund invests in companies with attractive fundamental investment attributes that adopt, or are making progress towards sustainable business practices. The fund will not invest in companies that the sub-adviser deems to have material unresolvable ESG issues (i.e., companies with material ESG issues that the sub-adviser believes cannot be corrected through ongoing company engagement and active proxy voting).

    The sub-adviser next conducts rigorous fundamental analysis of the competitive position and valuation of potential investments, systematically integrating the consideration of ESG issues through its proprietary ESG quality review, which is designed to ensure that Newton appropriately accounts for any material ESG issues of the company in determining the potential investment’s valuation.

    The sub-adviser assigns an ESG quality review rating to a company based on a proprietary quality review that includes one or more of the following:

    • Environmental analysis, which includes an assessment of material environmental issues, such as carbon emissions, water management, energy sources and uses, hazardous materials, environmental benefits, natural resources, biodiversity, land rehabilitation and the risks presented by physical threats such as extreme weather events.
    • Social analysis, which includes an assessment of material social issues, such as human rights, human capital management, diversity and inclusion, supply chain management, labor standards, health and safety, business ethics, including consumer protection, and avoidance of corruption in all forms, including extortion and bribery.
    • Governance analysis, which includes an assessment of corporate governance structures and processes and takes into account the particular company circumstances and regulatory restrictions, guidelines and established best practices with respect to board structure, including the balance between executive and independent board representation, succession planning, capital structure, remuneration, risk management, internal controls, shareholder rights, ownership structure and transparency.

    Ongoing ESG Monitoring and Engagement. In addition to investing in companies that the sub-adviser believes are “sustainable” after applying the fundamental analysis and ESG quality review rating described above, the sub-adviser may invest in companies where it believes it can promote sustainable business practices through ongoing company engagement and active proxy voting consistent with sub-adviser’s investment and engagement priorities. The sub-adviser will also monitor the fund’s entire portfolio for emerging ESG controversies and issues and will periodically review each company’s ESG quality rating. This integrated investment process is intended to ensure that ESG issues are taken into account and that the fund invests in companies with attractive fundamental investment attributes that adopt, or are making progress towards, sustainable business practices. Once an investment has been made, any material but resolvable ESG issues identified in the ESG quality review process will be addressed with the company in an engagement plan in order to promote change. The sub-adviser typically will vote at every shareholder meeting of every portfolio holding. This activity is undertaken in-house to ensure that the opinions expressed through sub-adviser voting record are in line with the sub-adviser’s investment and engagement priorities. The fund will not invest in companies that the sub-adviser deems to have material unresolvable ESG issues.

    The fund will not purchase shares in a company that manufactures tobacco products.