approaching sustainability holistically: how investors and brands can make progress on key issues...

ApproachingSustainabilityHolistically:HowInvestorsandBrandsCanMakeProgressonKey

IssuesTogether

Paul Herman, HIP Investor Ratings + Portfolios @hipinvestorEvan Harvey, Nasdaq @NASDAQ

Jackson Robinson, Trillium Asset Management @TrilliumAM

Besuretoengageintheapp:sb16app.com

1)Checkintothesessionbyselectingsession fromtheprogramandselecting'checkin'

2)Poseand'up-vote' questions tobeposedduringQ&A:Insession description, select'submitaquestion'

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What Does ESG Mean?Limiting the data spectrum to realistic deliverables

SOURCE:BrownFlynn,2015

ESG Disclosure Guidance

How does Nasdaq define ESG data?Better labels = clearer expectations

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It is important to note that while this document primarily uses the term “ESG” because it is commonly used among investors, the term “sustainability” is used interchangeably as it is more common among companies. While subtle nuances exist, for the purpose of this guidance, both terms are seen as encompassing the broad set of environmental, social and governance considerations that can impact a company’s ability to execute its business strategy and create value.While ESG factors are at times called non-financial, how a company manages them undoubtedly has financial consequences. ESG factors create real impacts upon:


Access to capitalCost savings and productivityRisk managementRevenue growth and market accessBrand value and reputation

License to operateHuman capital managementEmployee retention and recruitmentMergers and acquisitionsNew product and service innovation

Progress: Exchange-Driven ESG ReportingWhat is the current state?

4 ESG Disclosure Guidance

SSE Research, Sept 2016

A Mix of Rules, Guidance, and Commitments40 (of 82) exchanges are leading the way


SSE Research, Sept 2016

Defining the LandscapeNasdaq recommends disclosure of these ESG metrics

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This list includes 33 indicators across three broad categories. E, S, and G concerns are given equal weight. This list purposely includes all 7 of the “first generation” sustainability metrics valued by Corporate Knights and other ratings entities.ENVIRONMENTAL (E) SOCIAL(S) CORPORATEGOVERNANCE (G)

E1. Direct&IndirectGhG Emissions S1.CEOPayRatio G1. Board– SeparationofPowers

E2. Carbon Intensity S2. GenderPayRatio G2. Board– Transparent Practices

E3. Direct&IndirectEnergyConsumption S3.EmployeeTurnoverRatio G3.Incentivized Pay

E4. EnergyIntensity S4.GenderDiversity G4.FairLaborPractices

E5. PrimaryEnergySource S5.Temporary WorkerRatio G5.SupplierCodeofConduct

E6. RenewableEnergy Intensity S6.Non-DiscriminationPolicy G6.EthicsCodeofConduct

E7. WaterManagement S7.InjuryRate G7.Bribery/Anti-CorruptionCode

E8. WasteManagement S8.GlobalHealthPolicy G8.TaxTransparency

E9. EnvironmentalPolicy S9. Child&ForcedLaborPolicy G9.SustainabilityReport

E10. EnvironmentalImpacts S10.HumanRightsPolicy G10.OtherFrameworkDisclosures

S11.HumanRightsViolations G11.ExternalValidation,Assurance

S12.Board- Diversity


Sidebar 1: UN Sustainable Development Goals


Stock exchanges have been asked (by the UN and PRI) to create corporate reporting guidance and other tools that specifically address these five SDGs. Doing so would significantly increase global chances of achieving 2030 targets.

Sidebar 2: Global Regulatory Actions


Virtually every market regulator is active in the sustainability debate. This has been driven by demand from investors, governments, NGOs, and citizens. Some regulators have already created ESG disclosure requirements; others are investigating the right way forward.

Note: SEC Reg S-K. Of the 227 original comment letters, 66% discussed sustainability disclosures. This is pretty remarkable, considering that only 3.2% of the Concept Release (11 of 341 pages) discussed sustainability disclosure. SASB

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Sidebar 3: Compelling Statistics

• 95%oftheGlobal250issueseparateESGreports

• 90%ofhigh-performingESGcompanieshavelowercostsofcapital

• 88%ofhigh-performingESGcompanieshavebetteroperationalperformance

• 85%ofhigh-performingESGcompaniesoutperformaccountingstandards

• 80%ofhigh-performingESGcompanieshavebetterstockperformance

• 76%anticipateresourceshortageswillimpactcorebusinessobjectives

• 70%organizesustainabilityinstrategicoroperationalareas

• 68%haveincreasedtheircommitmenttosustainabilityinthepastyear

• 65%havededicatedsustainabilityteamsandbudgets

• 65%ofCFOshavesomedirectinvolvementinsustainability

• 53%oftheGlobal500experiencednegativewater-relatedbusinessimpacts

• 53%ofshareholderresolutionsarerelatedtoESGissues

• 40%ofequityanalystsleveragesustainabilityperformanceinvaluations

• 40%ofallcarboncutswouldultimatelygenerateaprofit


THE 84% IS MEASURABLE

Smarter Beta: Value-Creation

Fundamentals

People As An Asset

Natural Resource Efficiency

Governance & Stakeholder Mgmt.

Transparency of Risks &

OpportunitiesCONFIDENTIAL © 2006-2016 HIP

Investor Inc. 12

Key Drivers of Value + Risk

+ Customer Satisfaction+ Employee Retention

+ Oil & water use+ Energy mix

+ Board & team diversity+ Supply chain mgmt.

- Legal exposure- Lobbying ratio

Knowable Yet Ignored

Not on Financial

Statements

EXTRACTIVEVS

INNOVATIVECONFIDENTIAL © 2006-2013 HIP

Investor Inc. 13

HEALTH

EQUALITY

WEALTH

EARTH

TRUST

P R O F I T

I M P A C T

INNOVATE

Products & Services

WITH NATURE

OperatingMetrics

BY PEOPLE

MgmtPractices

SUSTAINABLE PRODUCTS + PEOPLE+ PLANET

= HIGHER PROFIT POTENTIAL

14 CONFIDENTIAL © 2006-2016 HIP Investor Inc.

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NewMetric:YourGreenPRODUCTRevenue$$$

ConsumerDiscretionary

Automobiles &Components

Automobiles

AutomobileManufacturers Gasoline

Flex-fuel

Hybrid Electric

Electric

GICSIndustry

Segments

SustainableRevenueSegments

A ‘CERTIFIED GREAT WORKPLACES’ PORTFOLIO WOULD’VE HANDILY BEATEN

THE S&P 500

10-yr TSR Growth*330%292%119%102%

$-

$100,000

$200,000

$300,000

$400,000

$500,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GPTW MediumGPTW Large

S&P 400

Cumulative Total Shareholder Return (TSR) over 10 Years

* Total Shareholder Return includes reinvested dividends and price appreciation. From Dec 31st 2005 to Dec 31st 2015.Source: Great Place To Work ®; Thomson Reuters; HIP Investor analysis and portfolio modeling

No.Empl. FirmsGPTW Medium 100-999 22GPTW Large 1000+ 93

Category

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GlobalLeadersLinkCEOPaytoPositivePLANETGoals

SustainabilityPayLink

Board/ExecutiveBoard CEO CFO COO Corporate

ExecutiveTeamExecutiveOfficer

GHGReduction,ExpandedUseof

NaturalRefigeration,etc.

Scope1&2GHGReduction

GHGReductionTargetperConsumer

Scope1,2,&3GHGReduction

Scope1,2,&3GHGReduction

EnergyEfficiency,EmissionstoAir(CO2,NOx,Sox),Emissionsto

Water

GHGReduction,EnergyEfficiency

GHGReduction,EnergyEfficiency

EmissionReduction,SalesofClimateProtection

Products

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HIGHER SUSTAINABILITY àHIGHER PROFIT

HIP RATINGà RETURN ON EQUITY

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Fast Facts: About Corporate Knights & HIP Investor(1) Use Strategic Scorecards

that Measure Sustainability….

(2)…that Link to Financial Value§ Business Case for Sustainability§ PRODUCTS: “Green Revenue”

§ PEOPLE: Calculate Human Capital Value§ PLANET: Issue “Green Bonds”

§ PROFIT: Quarterly “Sustain’y Earnings Call”

(3) Educate and Engage Employees Globally§ Impact ratings of 401(k) fund choices for employees

ATo-DoListforSustainableProfits

CONFIDENTIAL © 2006-2015 HIP Investor Inc. 21

Published 2010(John Wiley & Sons)

*Amazon.com*BetterWorldBooks

* Wiley.com

Top 20 Business Book Bestseller List

26 University and MBA Curricula

75 Global Libraries on 5 Continents

THE HIP INVESTOR BOOK: A HOW-TO GUIDE FOR IMPACT + PROFIT

CONFIDENTIAL © 2006-2013 HIP

Investor Inc. 22

SHAREHOLDERS PROPOSALS TO ADDRESS

LONG-TERM FUTURE RISKS


Investor Inc. 23


Investor Inc. 24


Investor Inc. 25

HIP RATINGS = 100 POINT SCALE

IMPACT, FUTURE RISK + FUTURE RETURN

Worst: 0 HIP Rating Best: 100

Net Negative IMPACTHealth, Wealth, Earth, Equality, Trust Net Positive

More Volatile Future RISK More Resilient

Lesser Potential Future RETURNS Stronger Potential

HIP RATINGZero 100

26 © 2006-2016 HIP Investor Inc.

9 S

EC

TO

RS

SOVEREIGNSAGENCIES

TRANSPORTATION

WATER

ROADSSEAPORTSAIRPORTS

COMBINEDWASTEWATERWATER

AGENCIES ENTERPRISES

ENERGYHOUSING

EDUCATION

ENERGY

GOVERNMENT

HEALTHCAREHOUSING

K-12 DISTRICTS

UNIVERSITIESCOMMUNITY COLLEGES

COMBINEDHOSPITALSSTATESCOUNTIESCITIESUTILITIES

HOUSING AGENCIES

SOVEREIGNS COUNTRIES

IMPACTS VARY BY SECTOR

28CONFIDENTIAL © 2006-2015 HIP InvestorInc.

General Government Housing

Water Higher Education

8 of 10 TRUST points:

• Metering• Smart-metering

36 of 40 HEALTH points:

• Drinking water safety, including nitrate and fluoride

• Level of EPA violations

14 of 40 EARTH points:

• Treatment technique• Leakage• Per-person

water use• Use of recycled water

2 of 10 EQUALITY points:

• Gender diversity of the Board and executive management

60%

WATER UTILITIES:CITY OF SAN DIEGO WATER = 60%

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K-12 Muni Bond Issuers: Advance High Rated K-12’s with Low Income to Continue their High Impacts

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K-12 Muni Bond Issuers: Fund High Rated K-12’s with Low Income to Seek Better Impacts

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CITIES: Household Income and Impact Ratings Correlate, but Impact Depends on Management

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HOSPITAL SYSTEMS: Household Income and Impact Ratings Correlate, but Impact Depends on Mgmt.

HIP RATINGS FOR 195+ SOVEREIGN COUNTRIES

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COUNTIES IN CALIFORNIA

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CITY IMPACT CATEGORIESCity of Seattle = 70%

15 of 25 WEALTH points

•Median Income•Affordability of

Housing•Vacant Houses•Unemployment

•Poverty

21 of 25 HEALTH points:

• Obesity/Diabetes• Crime Rate

• Graduation Rate• Health Insurance

Coverage

75%15 of 25 EQUALITY

points:• Gender Diversity

& Ethnicity Reflected in

Business Ownership

WEALTH25%

EQUALITY25%EARTH

25%

HEALTH25%

70%

19 of 25 EARTH points:• Commuting

Method &Time Duration

HIP HEALTH PILLAR HIP WEALTH HIP EQUALITY

St County MetroAreaOverall

HIP Rating

Diabetes Rate

Adult Obesity

Rate

V iolent Crime Rate

Murder Rate

Grad Rate High

School

Grad Rate

College

% Living in Poverty

Occupied (not vacant)

Housing

Women Ow ned

Businesses

African American Population

African American Ow ned

BusinessesMD County of Anne Arundel Baltimore 58.3% 8% 28% 561 3.5 91% 37% 6% 93% 31% 15% 9%MD County of Baltimore Baltimore 54.1% 9% 27% 538 2.5 90% 35% 10% 92% 31% 26% 17%MD County of Carroll Baltimore 57.4% 8% 28% 207 2.4 91% 32% 6% 96% 27% 3% 2%MD County of How ard Baltimore 61.7% 8% 25% 577 - 95% 60% 4% 96% 30% 17% 15%MD County of Montgomery Baltimore 57.9% 8% 25% 193 2.1 92% 57% 7% 95% 26% 17% 3%MD County of Prince George Baltimore 53.5% 11% 34% 708 10.5 85% 30% 9% 92% 38% 63% 55%MD County of Frederick Baltimore 62.2% 8% 27% 312 1.3 92% 38% 6% 95% 31% 8% 6%MD County of Harford Baltimore 58.6% 9% 30% 347 2.5 92% 33% 7% 94% 34% 13% 9%MD City of Baltimore Baltimore 44.7% 12% 32% 1,405 34.9 80% 27% 24% 82% 37% 63% 35%US USA Average National * 8% 27% 405 4.8 86% 29% 16% 87% 29% 13% 7%

* The median of HIP Ratings calculated for Cities is 52.8%, for Counties is 53.5%, and for States is 49.5%; HIP Ratings cover more than 350 cities, counties and states.HIP Ratings are comprised of the Pillars of Health, Wealth, Earth, Equality and Trust. Selected pillars and metrics are show n above.Each column is color-coded: GREEN for leaders in ratios, YELLOW for average ratios, RED for laggards in ratios

The Wire: Impacts of City of Baltimorevs. surrounding Maryland Counties

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SRI, ESG AND IMPACT APPLY ACROSS ALL ASSET CLASSES

Higher Impact Choices for Your Portfolio

Cash

Eco-focused banks

Economic empower-ment

credit unions

Fixed income

Social Impact Bonds

Muni BondsMicrofinance

Mezzanine Debt Funds

Income Generating

Appreciation

REITsPreferred equities

(dividends)

Equities

Impact-weighted

strategies

International and

Emerging

Global portfolios

Venture Capital and

Private Equity

Sustainability funds

Education and Human Capital

funds

Alternatives

Sustainable ForestryOrganic

AgricultureRenewable

Fuels


HOW TO SERVE YOUR CLIENTS DESIRING SRI, ESG, IMPACT:

FIRST 3 STEPS

1. Investment Policy Statement: Include impact alongside risk, return, income & liquidity goals

2. Impact Allocation + Themes: Specify impact themes and goals for each asset class

3. New Investment Evaluation: Integrate impact into your planning and portfolio design


1. INVESTMENT POLICY STATEMENT (CLIENT SAMPLE)

INCOME :: RETURNS :: RISK :: IMPACT :: BENCHMARKS

qGenerate after-tax INCOME of $__MM annually, through conservative to moderate investment choices (the majority from fixed income, corporate bonds, sovereign treasuries, real estate investment trusts [REITs], and dividends from preferred and common stocks).

qLower the RISK of principal loss through diversification across multiple asset types and seek protection against potential inflation (e.g. TIPS: Treasury Inflation Protected Securities; baskets of commodities, including gold and silver; real estate and REITs; investments that generate income within 18 months of committed capital; and consideration of hedging, including options).

qSeek higher positive-IMPACT investments across all asset types (e.g. cash, fixed income, public equity, private equity, real estate, etc.). Using the HIP (Human Impact + Profit) Scorecard evaluation tools, target a 100% invested for impact by 2020. Today, the portfolio’s weighted average HIP Score is __%.q All of our investments need to minimize the negative impact on all people and the planet.

qTarget competitive investment PERFORMANCE versus appropriate benchmarks, calculated on a pre-tax basis, relative to similar risk investments: q According to the Strategic Plan’s goals, the portfolio seeks a five-year average annual appreciation of 8%

nominal returns. Expected tax rate of 35%, we seek 5% after-tax annual returns.

qRationale for Impact Investor:q Liquidity, Doing well and doing good, Wealth preservation, Diversification, and Moderate capital

appreciation


HIP RATINGS – OF A PORTFOLIO BY ASSET CLASSRISK, RETURN, IMPACT AND ALLOCATION

RELATIVE TO AN EFFICIENT FRONTIER

* Annualized Returns (time-weighted: TWR) over 3 years and no less than 19 months, for liquid securities as of 6/30/2013; for remainder of funds/holdings as of 3/31/2013 or 12/31/2012. Returns are Gross of Advisory and Management Fees.HIP REIT included inside Real Estate Fund assets. CONFIDENTIAL © 2006-2013 HIP Investor Inc.

RETURNS: Annualized Returns*

RISK: Standard Deviation of Returns*

ALLOCATION: size of bubbles is percent (%) Allocated to Asset Class

IMPACT: color of bubbles: Green = higher IMPACTYellow = medium IMPACTRed = lower IMPACT

CONTACT HIP

R.PaulHerman [email protected]

+1(415)902-7741

Twitter:@HIPinvestor


APPROACHING SUSTAINABILITY HOLISTICALLY: HOW INVESTORS & BRANDS CAN MAKE PROGRESS ON KEY ISSUES TOGETHER

Jackson W. RobinsonVice Chair and Portfolio Manager

Trillium Asset Management

TRILLIUM OVERVIEW

• Boston based firm started in 1982

• Over $2 billion in assets under management plus $200 million in model-driven platform assets (9/30/16)

• Oldest investment advisor exclusively focused on sustainable and responsible investing (SRI)

• 55% Institutional/ 45% Individual • Employee owned, with broad distribution of shares

• 4 person dedicated shareholder advocacy team

SHAREHOLDER ADVOCACY EXAMPLES

IMPORTANTDISCLOSURE.TheviewsexpressedarethoseoftheauthorsandTrilliumAssetManagement,LLCasofthedatereferenced andaresubject tochangeatanytimebasedonmarketorother conditions. Theseviewsarenot intendedtobeaforecastoffutureeventsoraguaranteeoffutureresults.Theseviewsmaynotberelied uponasinvestmentadvice.Theinformation providedinthismaterialshouldnot beconsidered arecommendation tobuyorsellanyofthesecurities mentioned.Itshould notbeassumedthatinvestmentsinsuchsecurities havebeenorwill beprofitable. Totheextent specificsecurities arementioned, theyhavebeenselectedbytheauthorsonanobjective basistoillustrate viewsexpressedinthecommentaryanddonotrepresent allofthesecurities purchased, soldorrecommended foradvisoryclients.Theinformation contained hereinhasbeenprepared fromsourcesbelievedreliablebutisnotguaranteedbyusastoitstimelinessoraccuracy, andisnot acompletesummaryorstatement ofallavailabledata.Thispieceisforinformational purposesandshouldnotbeconstrued asaresearchreport.

2016 SHAREHOLDER RESOLUTIONS

*In addition to engaging with approved companies on our buy list , Trillium also conducts advocacy at selected companies that are

held as legacy positions in client portfolios. These are companies that may not meet our minimum social and environmental criteria,

but that we still seek to improve. See important disclosure page in appendix.