Portland Rotary: The state of socially responsible investing and the drivers of change

1. An ERM Group Company © 2018 BrownFlynn Ltd. All Rights Reserved. Mike Wallace, Partner, BrownFlynn, an ERM Group company Interim Executive Director, Social & Human Capital Coalition November 6, 2018 The State of Socially Responsible Investing and the Drivers of Change

2. / 2© 2018 BrownFlynn Ltd. All Rights Reserved. Context The Four-Way Test: • Is it the truth? • Is it fair to all concerned? • Will it build goodwill and better friendships? • Will it be beneficial to all concerned?

4. / 4© 2018 BrownFlynn Ltd. All Rights Reserved. Who is interested in sustainability? Transparency on Sustainability Investors Employees Consumers Customers Suppliers Regulators/ Legislators Boards of Directors Local Communities Activists/ Advocacy Groups Industry Associations

6. © 2018 BrownFlynn Ltd. All Rights Reserved. / 6 What if the world were asked to define sustainability? Environmental  Materials  Energy  Water  Biodiversity  Emissions  Effluents and Waste  Products and Services  Environmental Compliance  Transport  Supplier Environmental Assessment  Environmental Grievance Mechanisms Economic  Economic Performance  Philanthropy  Market Presence  Indirect Economic Impacts  Economic Inclusion  Procurement Practices Human Rights  Non-discrimination  Freedom of Association & Collective Bargaining  Child Labor  Forced /Compulsory Labor  Security Practices  Indigenous Rights  Supplier Human Rights Assessment  Human Rights Grievance Mechanisms Labor Practices & Decent Work  Training and Education  Employment  Labor/Management Relations  Occupational Health & Safety  Diversity & Equal Opportunity  Equal Remuneration for Men and Women  Supplier Assessment for Labor Practices  Labor Practices Grievance Mechanisms Society  Anti-Corruption  Public Policy  Anti-competitive Behavior  Local Communities  Supplier Assessment for Impacts on Society  Grievance Mechanisms for Impacts on Society Product Responsibility  Customer Health & Safety  Product & Service Labeling  Marketing Communications  Customer Privacy  Product Compliance

9. / 9© 2018 BrownFlynn Ltd. All Rights Reserved. Investor Coalitions & Networks Interfaith Center on Corporate Responsibility (ICCR)  1972; nearly 300 members; representing over $400 billion Institutional Investors Group on Climate Change (IIGCC)  2001; over 150 members; representing over $20 trillion Carbon Disclosure Project (CDP)  2002; nearly 900 signatories; representing over $100 trillion Investor Network on Climate Risk (INCR)  2003; over 150 members; representing $25 trillion Principles for Responsible Investment (PRI)  2006; over 1,800 signatories; representing over $80 trillion United Nations Guiding Principles Reporting Framework  2013; over 67 investors; representing nearly $4 trillion Task Force on Climate-related Financial Disclosures  2015; over 32 members and 275 signatories; representing over $86.2 trillion

10. © 2018 BrownFlynn Ltd. All Rights Reserved. / 10 Trends in Responsible Investment Within its 2018 Trends Report, US SIF examines three basic Responsible Investment strategies (see chart). Responsible Investment grew 38% between 2016 and 2018.  ESG Incorporation = Inclusion of ESG risks and opportunities in determinations for asset management (Passive)  Shareholder Resolutions = A method for proposing changes to a company as voted by fellow shareholders during the company’s annual meeting; also referred to as Proxy Resolutions (Active)  Overlapping strategies = combination of ESG Incorporation and Shareholder Resolutions

11. / 11© 2018 BrownFlynn Ltd. All Rights Reserved. UN Principles for Responsible Investment (PRI) The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. Source: http://www.unpri.org/ $7 $10 $13 $18 $21 $24 $32 $34 $45 $59 $62 $68 $82 63 185 361 523 734 890 1,050 1,186 1,251 1,384 1,501 1,714 1,961 - 500 1,000 1,500 2,000 $- $20 $40 $60 $80 $100 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 UN PRI Growth Over Time Assets under management (US$ trillion) Number of Signatories

13. © 2018 BrownFlynn Ltd. All Rights Reserved. / 13© 2018 BrownFlynn Ltd. All Rights Reserved. RiskMetrics Group buys Innovest FEB 2009 Thomson Reuters buys Asset 4 NOV 2009 Bloomberg buys New Energy Finance DEC 2009 GMI and The Corporate Library merge JUL 2010 Vigeo and EIRIS merge OCT 2015 MSCI acquires GMI Ratings JUN 2014 ISS buys IW Financial JAN 2017 Morningstar buys 40% of Sustainalytics JUL 2017 SEP 2009 Sustainalytics and Jantzi Research Inc. merge NOV 2009 RiskMetrics Group buys KLD MAR 2010 MSCI buys RiskMetrics Group JUN 2012 Sustainalytics acquires Responsible Research SEP 2015 ISS acquires Ethix SRI Advisors OCT 2016 Standard & Poor’s buys Trucost JUN 2017 ISS acquires South Pole Group’s Investment Climate Data Division ESG Research Market Evolution

14. / 14© 2018 BrownFlynn Ltd. All Rights Reserved. The ESG Ecosystem Based on sustainability reporting standards and frameworks, there are 100+ organizations producing lists, rankings, ratings, and scorecards of the “top companies” and “most sustainable” companies.

16. / 16© 2018 BrownFlynn Ltd. All Rights Reserved. Investor Interests Investors are increasingly asking companies to disclose strategies for long-term value creation and incorporation of ESG into business strategies. I want to reiterate our request, outlined in past letters, that you publicly articulate your company's strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors…you must also understand the societal impact of your business as well as the ways that broad, structural trends — from slow wage growth to rising automation to climate change — affect your potential for growth.” – Larry Fink, BlackRock Letter to CEOs, 2018 “As part of our stewardship review, we classify companies according to how they have: 1) identified material environmental and social sustainability issues; 2) assessed and, where necessary, incorporated the implications into their long-term strategy; and 3) clearly communicated their approach to sustainability and its influence on strategy.” – Ronald O’Hanley, State Street Letter to Board Members, 2017 “Shareholders rely on a strong board to oversee the strategy for realizing opportunities and mitigating risks. Thorough disclosure of relevant and material risks enables share prices to fully reflect all significant known risks and opportunities…Climate risk is an example of a slowly developing and highly uncertain risk—the kind that tests the strength of a board’s oversight and risk governance..” – F. William McNabb III, Vanguard Letter to Directors, 2017 Further Reading: Why the world’s largest asset managers are pushing long-term thinking, Mark Tulay, Director, Strategic Investor Initiative, CECP

17. / 17© 2018 BrownFlynn Ltd. All Rights Reserved. Principles for Responsible Investment (PRI) 1. We will incorporate ESG issues into investment analysis and decision-making processes. 2. We will be active owners and incorporate ESG issues into our ownership policies and practices. 3. We will seek appropriate disclosure on ESG issues by the entities in which we invest (i.e., GRI, UN Global Compact). 4. We will promote acceptance and implementation of the Principles within the investment industry. 5. We will work together to enhance our effectiveness in implementing the Principles. 6. We will each report on our activities and progress towards implementing the Principles.

18. / 18© 2018 BrownFlynn Ltd. All Rights Reserved. January 2018 – Larry Fink’s Letter to CEOs “Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce?” March 2018 – Investor Stewardship on Human Capital “Research has consistently shown the importance of human capital to company performance. Companies included in Fortune magazine’s “100 Best Companies to Work For” lists earned, over the long-term, excess risk-adjusted returns of 3.5%.” October 2018 – BlackRock to Expand Access to ESG Data “BlackRock projects ETF assets in ESG to grow from $25 billion today to more than $400 billion by 2028.” Recent Market Developments Investor Activity

19. / 19© 2018 BrownFlynn Ltd. All Rights Reserved. April 2018 – CEO of Salesforce Closes the Gender Pay Gap  “One of the reasons we’re considered such a great place to work (Fortune rated them #1 this year) is that from the time we founded the company, we emphasized philanthropy and social responsibility. We pay employees to give their time to local schools and charities, and we have donated more than $180 million to non-profits.”  “The World Economic Forum says that it'll take more than 100 years for us to pay men and women equally.”  “We said we're going pay men and women equally at this company, and we're going to go through and level set every job, every division, and every department. We’re going make sure that we have gender equality.”  “It cost us about $3 million for us to do those adjustments the first year.” Recent Market Developments Corporate Activity

21. / 21 Bloomberg ESG Information Publicly Available Social & Human Capital Metrics: What Investors See  Bloomberg aggregates information from publicly available disclosures, like SEC filings, annual reports, sustainability reports, and third-party analyses on almost 10,000 companies as a service offering to the investment and business communities.  Bloomberg captures more than 600 metrics related to environmental, social, and governance fields.  Nearly 15,000 subscribers (most of whom are investors) used the ESG data function on a Bloomberg terminal in 2017.  Bloomberg provides their own rating, called an ESG disclosure score, consisting of a rating from 0-100 based on a company’s level of transparency (not performance). They also provide separate disclosure scores for E, S, and G.  To show social & human capital-related metrics already being collected by Bloomberg, we developed the following slides using examples from the Oil & Gas industry. Image from Bloomberg 2017 Impact Report

25. / 25© 2018 BrownFlynn Ltd. All Rights Reserved. ESG Company Comparison: Scores, Ranks & Ratings Name Bloomberg ESG Disclosure Score RobecoSAM Total Sustainability Rank RobecoSAM Governance Rank RobecoSAM Environmental Rank RobecoSAM Social Rank Sustainalytics ESG Rank Sustainalytics Environment Percentile Sustainalytics Social Percentile Sustainalytics Governance Percentile ISS Governance QuickScore Alphabet 42.15 28 4 56 28 81.97 86.89 82.79 10.66 10 AMD 52.89 16 13 25 13 N/A N/A N/A N/A 1 Alibaba 7.85 5 9 20 27 N/A N/A N/A N/A N/A Amazon 25.21 46 50 46 29 42.35 57.65 56.47 10.59 7 Apple 53.11 36 41 36 9 70.51 85.90 43.59 42.31 1 AT&T 59.67 68 66 63 70 56.72 62.69 59.70 43.28 4 Cisco 50.41 88 88 100 100 91.03 83.33 92.31 92.31 1 Facebook 24.38 4 0 62 5 61.48 61.48 80.33 3.28 10 Flex 30.99 64 67 50 67 82.05 71.79 85.90 64.10 2 Intel 55.37 84 90 74 87 98.08 92.31 100.00 96.15 2 Microsoft 54.55 93 97 90 87 93.44 95.08 91.80 77.05 1 Netflix 12.81 13 21 19 9 4.71 1.18 1.18 27.06 10 Salesforce 35.12 83 83 70 77 81.15 84.43 68.03 91.80 10 Tesla 15.29 4 31 4 0 30.43 43.48 21.74 39.13 7 Verizon 40.33 23 39 29 23 68.66 85.07 55.22 53.73 4

26. / 26© 2018 BrownFlynn Ltd. All Rights Reserved. ESG Company Comparison: Environmental Metrics Company RobecoSAM Environmental Rank Sustainalytics Environment Percentile Total GHG Emissions (Th Tonnes) GHG Scope 1 GHG Scope 2 Total Energy Consumption (MWh) Renewable Energy Use (MWh) Environmental Supply Chain Management* Climate Change Policy Alphabet 56 86.89 2968.77 66.22 2902.55 6513.72 3539.24 Y Y AMD 25 N/A 52.37 2.57 49.80 125 29 Y Y Alibaba 20 N/A N/A N/A N/A N/A N/A N/A N/A Amazon 46 57.65 N/A N/A N/A N/A N/A Y Y Apple 36 85.90 633.84 34.32 599.52 1736.52 1538.14 Y Y AT&T 63 62.69 8877.89 1140.63 7737.25 19627.8 298.242 Y Y Cisco 100 83.33 781.72 47.41 734.31 1825 1263 Y Y Facebook 62 61.48 552.86 7.18 545.68 N/A 786.9 N N Flex 50 71.79 1057.06 N/A N/A N/A N/A Y Y Intel 74 92.31 3415.00 976.00 2439.00 6420 N/A Y Y Microsoft 90 95.08 2149.02 88.49 2060.53 5187.18 4852.64 Y Y Netflix 19 1.18 N/A N/A N/A N/A N/A N N Salesforce 70 84.43 135.00 3.00 132.00 N/A 98.05 Y N Tesla 4 43.48 N/A N/A N/A N/A N/A N N Verizon 29 85.07 5632.22 372.50 5259.73 N/A N/A Y Y * Indicates whether the company has implemented any initiatives to reduce the environmental risks in its supply chain

27. / 27© 2018 BrownFlynn Ltd. All Rights Reserved. ESG Company Comparison: Social Metrics Company RobecoSAM Social Rank Sustainalytics Social Percentile Health and Safety Policy Lost Time Incident Rate Total Recordable Incident Rate Lost Time Incident Rate-Contractors Total Recordable Incident Rate- Contractors Social Supply Chain Management* Human Rights Policy Alphabet 28 82.79 Y N/A N/A N/A N/A Y N AMD 13 N/A Y N/A N/A N/A N/A Y Y Alibaba 27 N/A N/A N/A N/A N/A N/A N/A N/A Amazon 29 56.47 Y N/A N/A N/A N/A Y N Apple 9 43.59 Y N/A N/A N/A N/A Y Y AT&T 70 59.70 Y N/A N/A N/A N/A Y Y Cisco 100 92.31 Y 0.31 N/A N/A N/A Y Y Facebook 5 80.33 N N/A N/A N/A N/A N N Flex 67 85.90 Y N/A .57 N/A N/A Y Y Intel 87 100.00 Y .07 .47 N/A N/A Y Y Microsoft 87 91.80 Y N/A N/A N/A N/A Y Y Netflix 9 1.18 N N/A N/A N/A N/A N N Salesforce 77 68.03 Y N/A N/A N/A N/A Y N Tesla 0 21.74 Y N/A N/A N/A N/A N N Verizon 23 55.22 Y N/A N/A N/A N/A Y Y * Indicates whether the company has implemented any initiatives to reduce the environmental risks in its supply chain

28. / 28© 2018 BrownFlynn Ltd. All Rights Reserved. ESG Company Comparison: Governance Metrics Company RobecoSAM Governance Rank Sustainalytics Governance Percentile % Women in Management % Women in Workforce % Women on Board Number of Female Executives Percentage of Female Executives % Minorities in Workforce % Independent Directors Alphabet 4 10.66 N/A 31.0 25.0 2 28.6 N/A 66.7 AMD 13 N/A 12 24.0 22.2 1 16.7 N/A 66.7 Alibaba 9 N/A N/A N/A 9.1 5 29.4 N/A 45.5 Amazon 50 10.59 25 39.0 27.3 1 14.3 N/A 90.9 Apple 41 42.31 28 32.0 25.0 1 10.0 N/A 87.5 AT&T 66 43.28 N/A 32.0 30.8 1 10.0 43 92.3 Cisco 88 92.31 20 24.0 27.3 3 42.9 N/A 81.8 Facebook 0 3.28 N/A N/A 25.0 1 14.3 N/A 75.0 Flex 67 64.10 N/A 40.3 0.0 0 0.0 N/A 88.9 Intel 90 96.15 N/A 26.0 18.2 1 16.7 N/A 81.8 Microsoft 97 77.05 17.9 25.8 27.3 3 42.9 N/A 81.8 Netflix 21 27.06 N/A N/A 33.3 0 0.0 N/A 88.9 Salesforce 83 91.80 19 30.0 18.2 3 30.0 N/A 81.8 Tesla 31 39.13 N/A N/A 14.3 0 0.0 N/A 71.4 Verizon 39 53.73 29.6 35.2 30.8 1 11.1 N/A 92.3 * Indicates whether the company has implemented any initiatives to reduce the environmental risks in its supply chain

29. / 29© 2018 BrownFlynn Ltd. All Rights Reserved. Context The Four-Way Test: • Is it the truth? • Is it fair to all concerned? • Will it build goodwill and better friendships? • Will it be beneficial to all concerned?

30. © 2018 BrownFlynn Ltd. All Rights Reserved. Do Good. Do Well. Win.™ © 2018 BrownFlynn Ltd. All Rights Reserved. For more information on BrownFlynn’s services, please visit www.brownflynn.com or contact us below. Thank You Mike Wallace Partner (424) 320 3501 mikew@brownflynn.com