administration / finance track · 4/16/2015 1 a presentation for: northern california planned...

ADMINISTRATION / FINANCE TRACK Session 3: 2:15 pm - 3:30 pm

Topic: Socially Responsible and Sustainable Investing: Why It Is So Important Now. Presented by: Blaine Townsend, CIMC©, CIMA© Workshop Summary: The workshop will provide information on the evolution of socially responsible and sustainable investing and a discussion on the best practices in the field. By the end of this workshop participants will know the difference between "SRI", "ESG" and "Impact" investing and they will know where, when and why their donors might want to utilize these techniques.

Workshop Presenter

Blaine Townsend, CIMC©, CIMA©, is a partner and senior

portfolio manager at Nelson Capital. Blaine joined Nelson

Capital in 2009 after 13 years at Trillium Asset Management

where he served as a portfolio manager and manager of the

firm’s California office. While at Trillium, Blaine managed

socially responsible and sustainability-focused investment

portfolios and was instrumental in corporate engagement

efforts on a host of social and environmental issues. Blaine

also led the effort to create the “Joan Bavaria Awards for Building Sustainability in the

Capital Markets”, which is presented each year at the CERES annual conference. Prior to

joining Trillium, Blaine was the Assistant Director of Marketing and Social Research for

the Muir Investment Trust, the first socially screened municipal bond fund.

He has been writing about and researching corporate responsibility issues since the late

1980s and is a past board chair of the environmental organization LightHawk.

Blaine has a B.A. from the University of California Berkeley and is a Certified

Investment Management Consultant and Certified Investment Management

Analyst.

Blaine Townsend, CIMC©, CIMA© Nelson Capital Management 770 Tamalpais Dr., Suite 220 Corte Madera, CA 94925 415-945-2399 [email protected]

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A presentation for:

Northern California Planned Giving

April 29th 2015

Presented by

Blaine Townsend, CIMA®, Partner

Nelson Capital is a leader in providing investment solutions for clients seeking to maximize both financial and social returns. We act with integrity in everything

we do and strive to foster a collegial work environment built on trust and respect.

I. Nelson Capital Overview

Nelson Capital Management

II. Evolution

III. Skeptics

IV. ESG

V. Engagement

Nelson Capital Management | 2

VI. Trends

VII. Appendix

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Overview

Nelson Capital Management is a leading investment manager with unique expertise in

Socially Responsible Investing (“SRI”) and strategies incorporating Environmental, Social &

Governance (“ESG”) considerations into a consistent, disciplined investment process

Institutional Separate Accounts

Sub‐advisory

Packaging & Services

Firm Profile

Ownership

A wholly‐owned non‐bank investment affiliate of Wells Fargo & Company

Part of the Wells Fargo Asset Management Group

Nelson Capital maintains autonomy and local responsibility for the investment process

while benefitting from the ability to leverage certain centralized resources (i.e.

infrastructure) of a major financial institution

Assets under Management

$2 0 billion as of March 2015

HNW Separately Managed Accounts

SRI / ESG Advisory Services

Customization Capabilities

Account Composition

Individual Taxable Accounts

Foundations, Endowments $2.0 billion, as of March 2015

Primary Investment Strategies

SRI U.S. large cap core equity

U.S. large cap core equity


60% & Associations

32%

RetirementAccounts

8%

ll bl

Evolution

Socially Responsible

&

Sustainable Investing

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History of faith-based investing

Biblical TimesJewish and Islamic Law prevented certain types of investment

Examples include: Avoiding interest‐bearing investment

19th Century

20th Century

Quakers established a practice of avoiding investment in munitions,

weapons and the slave trade.

Avoiding the “sin stocks” became common practice.

Examples: Avoiding investment in alcohol, tobacco, gambling and weapons


21st Century

Specialized Faith‐based screens continue to emerge

Example: Christian Scientists avoiding healthcare and specific funds tailored for

life ethics, “Pro Family” or Shariah

Values-based SRI in 20th Century

1960s Vietnam War/Napalm, Civil Rights, Women’s Rights

1970s

1980s

Environmental Movement (Earth Day, “No Nukes”), Clear Air & Clean Water

Acts, Title IV, First SRI Mutual Funds, Interfaith Center for Corporate

Responsibility (ICCR)

Divestment/Apartheid, Social Investment Forum, SRI Research & Investment

Firms, 1st SRI Index, Exxon Valdez, 100 Best Companies to Work For in

America


1990s

Global Economy/Sweatshops, Animal Welfare, CERES, Tobacco, Sexual

orientation/non discrimination, Global SRI emerges, 10 year investment

performance

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Values-based SRI 21st Century

Environmental Climate Change/Carbon, Energy Efficiency, Water

Social

Governance

Sweatshops (supply chain, vendor policies), child labor, sex trafficking, non‐

discrimination policies in workplace

Corporate Governance, Risk Exposure, Transparency, Ethics


20th to 21st Century: Shift from Values to Value

Values‐based Avoidance screens: Defining good as the absence of badSRI

Values seeking sustainability

Avoidance screens: Defining good as the absence of bad.

Integrating ESG characteristics into the investment process. The world is

changing. Which companies are best positioned for that change? Defining

good as the presence of good.


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SRI and Sustainable investing today

Portfolio Screening

Portfolio screening on a wide range of issues.

Examples include: Tobacco, alcohol, gambling, weapons manufacturing,

nuclear power, environmental impact.

ESG Integration

CorporateEngagement

ESG = Environmental, Social, Governance

This approach seeks companies with superior characteristics in these areas

in the belief doing so will lead to better investment results over time.

Engage with portfolio companies on key sustainability issues, seeking

outcomes favorable to both shareholders and society.

Dialog with management and vote proxies on the sustainability issues.


ImpactInvesting

Where appropriate, seek direct investment in microenterprise, community

development, clean technology, and other investment opportunities that

provide high social or environmental impact while making a profit for investors.


Skeptics Sounds good, but can it be done?

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What did the skeptics say?

Performance Limiting your investment universe will reduce your return

Social Research

Fiduciary Duty

Will never be good enough or widely available

Considering social or environmental factors conflicts with fiduciary duty


Bottom of the socialpyramid

The capital markets will take care of social problems; better to maximize returns and give to

charity

Studies of U.S. Social Funds Find Competitive Performance

• Hamilton, Jo, and Statman (1993)– SRI fund performance about the same

• Bauer Koedijk and Otten (2002)These studies suggest that conventional

• Bauer, Koedijk, and Otten (2002)– SRI fund performance about the same

• Bollen and Cohen (2004)– SRI fund performance about the same

• Benson, Brailsford, and Humphrey (2005)– SRI fund performance about the same

• Renneboog et al (2007)– SRI fund performance about the same

investment factors are running the show, and that social factors are not having much impact on portfolio alpha.


SRI fund performance about the same

• Ghoul, Guedhami, Kwok, and Mishra (2011)– Good CSR lowers ROC

Source: Sristudies.org

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Social Index Performance

Performance Comparison as of 12/31/14

Since 4/30/90*

8 59%MSCI 400 Social Index

Modest growth bias

Sector weights relative to S&P 500 Index:

8.59%

9.97%

MSCI 400 Social Index

S&P 500

MSCI 400 Risk Profile:

Past performance is not indicative of future results

Total Return

Over‐weighted in Technology, Consumer Staples/Discretionary,

Healthcare

Underweighted in Energy, Utilities, Telecom

Source: MSCI factsheet; S&P total return calculation from Bloomberg.

* Performance calculated from 5/1/90 inception date of Domini Social Index, now titled the MSCI KLD 400 Social Index Nelson Capital Management | 13

Fact: Research is now available on 1000s of publically traded companies

Partial List of Research Providers


*NELSON CAPITAL also utilizes in‐house social research.

Nelson Capital Management | 14Disclaimer: Logos should not be considered endorsements and are for illustrative purposes only

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ESG data is even available on Bloomberg


Fiduciary duty does not conflict with SRI or ESG

Department of Labor Advisory Opinion (1998)

Fiduciary Study I (2005)United Nations Environmental Program Finance Initiative(UNEP FI)(UNEP FI)

UPMIFA ACT (2006)Uniform Prudent Management Institutional Funds Act

Legal Study (2008)Commissioned by David & Lucile Packard Foundation and Meyer Memorial Fund

UPMIFA ACT, California (2008)Uniform Prudent Management Institutional Funds Act

Fiduciary Study II (2009)United Nations Environmental Program Finance Initiative


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Risk to ignoring ESG might be a breach of fiduciary duty

“The links between ESG factors and financial performance are increasingly being recognized. Integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions ”clearly permissible and is arguably required in all jurisdictions.

Source: A Legal Framework for the Integration of ESG Issues into Institutional Investment 2005

“(The UNEP II) report also makes a powerful legal case for leadership in this area, underscoring the considered opinion….that ESG issues are not peripheral but should be part of mainstream investment decision‐making process across the industry.”

A hi St i UN U d S t G l 2009


Achim Steiner, UN Under‐Secretary‐General 2009

Source: http://www.unep.org/Documents.Multilingual/Default.Print.asp?DocumentID=593&ArticleID=6247

Capital Markets have a spotty record of taking care of societal problems…

“Investment banks can no longer embrace philanthropy as proxy for morality. With

vast pools of capital bolstering the global economy, it is imperative that banks

understand their role in shaping the next century – as both a financial and social

force.”


Blaine Townsend, San Francisco Chronicle Editorial the day Goldman Sachs went public, May 4th, 1999.

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Targeted

Impact Investing allows investors to be part of providing capital to underserved communities. Community

development bank CDs and Community investment loan fund notes are methods that allow investors to

participate in the areas such as those listed below.

Impact Investing

Public EquityEngagement & Proxy Voting

Solutions‐Focused

Public Equity

Community Investment Loan Fund

Community Development Bank CDs

Venture Capital/Private Equity

ImpactInvesting

• Affordable Housing

• Microcredit

• Small Business Funding

• Community Economic Development

• Sustainable Agriculture

• Independent MediaPublic Equity

GreenReal Estate

Loan Fund Notes • Renewable Energy/Clean Tech



ESG Process

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ESG Avoidance Screens

Sin Stocks No Alcohol, Tobacco, Firearms, Weapons, Pornography

2nd tier Zero Animal Testing, Zero Military, Faith‐based, Burma, Sudan


3rd tier Environmental (Oceans, Extraction Free, Climate)

Avoidance screening for environmental impact

Absolutes Relative

Sector: Pollution/Toxics Sector: “Best of Class”

Company: Egregious patterns of behavior Company: Moving in the right direction

Climate Change (absolutes, transparency) Climate Change (absolutes, transparency)

Toxic 100 as of 2013 Newsweek Green Rankings Top 5 U.S. 2014

E.I. du Pont de Nemours Allergen

Bayer Group Inc. Adobe

The Dow Chemical Ball Corporation

Exxon Mobile Ecolab

BASF Sigma‐Aldrich

Source: http://www.newsweek.com/2014/06/13/newsweeks‐green‐rankings‐2014‐253482.html

Source: http://www.peri.umass.edu/toxic100/ Nelson Capital Management | 22

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Environmental Screens: What would you have missed (maybe)?

“Best of Class” in 1990s

Cultural shift in 2000s

Texas City, Texas Explosion, 2005

BP Pipeline leak Alaska, 2007


Gulf of Mexico, 2010

$100s millions fines, laggard 2000sGoogle Images

G: Governance

Benefits to Society

• Encourages investment and sustainable growth

Benefits to Companies and Investors

• Encourages investment and sustainable growthgrowth

• Fights corruption

• Promotes competitiveness

• Stimulates productivity and innovation

• Promotes efficiency and reduces waste

• Stabilizes financial markets

• Develops capital markets

• Fosters transparent relations between business and government

growth

• Lowers cost of capital

• Strengthens company reputation

• Improves strategy

• Builds stakeholder relationships

• Grows and preserves shareholder value

• Protects investors’ rights

• Mitigates risk

• Increases liquidity


business and government

• Supports public confidence in the market system

• Increases liquidity

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ESG Companies: Providing Solutions

Solutions

Clean, Efficient Energy

ExamplesChallenges

• Climate Change

• Water Scarcity

• Pollution

Alternatives:

SolarHydroNuclear

Efficiencies:Smart gridLightingPowermanagement

Environmental Protection Water filtration & purificationWaste management, treatment, recyclingPollution prevention equipmentForestry and land use

Green building and constructionSustainable transportationEnvironmental engineering, design and services

Food and agriculture

Pollution

• Air• Water• Land

• Overconsumption

• Biodiversity loss

• Environmental Impact on Health

• Social Inequity

GeothermalPower management

Sustainable Infrastructure and Development


Social Equity

Food and agricultureMedicine and healthcare servicesHealth‐promoting consumer products

Credit and lending (micro‐lending, community banking, access to credit)Education and trainingRetail for “base of pyramid”

• Healthcare

• Education

• Basic Needs

• Access to Credit

Health and Well‐Being

Engagement Stewardship

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Blaine Townsend CIMA*^ Partner Sr PM

Corporate Engagement Committee

Blaine Townsend, CIMA*^ Partner, Sr. PM

Jon Manchester, CFA* Partner, Sr. PM

Kimberly Ryan, CFA*^ Partner, Sr. PM

Claire Veuthey^ Global ESG Analyst

Adam Berkowitz Proxy Coordinator

* Investment Committee

^ Active with PRI

Engagements seeking outcomes positive for shareholders and society


• Direct dialogue

• Collaborative dialogue

• Shareholder resolutions

• Letters of support

Corporate Engagement Process

• Proxy voting

Stakeholders

Engagement Committee

Corporates

• PRI, ICCR, CalSTRS

• As You Sow, Community organizations

• Clients, RMs, Analysts

• UCB‐Haas CRB

• Written communication

• Continued dialogue

• Resolution filed/ withdrawn

• Proxy voted

UCB‐Haas CRB


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Nelson Capital’s engagement process:

• Constructive dialog with portfolio companies

• Voting proxies

• Monitoring shareholder campaigns

Corporate Engagement

Dialog with Management

Monitoring shareholder campaigns

• Collaborating with other stakeholders

Why engagement?

• Identify issues that can be a catalyst for stock performance

• Promote positive change in the capital markets

• Discuss with management issues that affect our financial and ESG assessment of the

company

StakeholderAnalysis

Proxy Voting


Trigger points for engagement:

• Identification of an area of concern and need for more information

• Identification of an opportunity for ESG improvement

• Information gaps in financial analysis

• Information gaps in assessing the proxies

Increasing Investment Demand for Leadership

United Nations Principles for Responsible Investment (UNPRI) signatories represents investor demand for companies responsive to ESG risks and opportunities.

Nelson Capital Management | 30Source: Graphs used with permission. UNPRI.org, March 2015

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SRI investors expect more than just screens

Nelson Capital Management | 31Courtesy: The Cartoon Bank

Engagement: Global Fisheries

Over 90% of the world's living biomass is contained in the oceans, which cover 71% of the Earth's surface.

Marine sources provide about 20% of the animal protein eaten by humans. Another 5% is a e sou ces p o de about 0% o t e a a p ote eate by u a s ot e 5% sprovided indirectly via livestock fed with fish.

60% of fish consumption is by the developing world.

In Asia, about 1 billion people rely on fish as their primary source of protein.

Estimates suggest that seafood production from wild fish stocks will be

insufficient to meet growing U.S. and Global demand for seafood products in the next century.

The fishing enterprise employs some 200 million people worldwide.


Source: University of Michigan 2006 http://www.globalchange.umich.edu/globalchange2/current/lectures/fisheries/fisheries.html

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Engagement: Sustainable Fisheries

• Step I UNPRI working group

• Step II Framework

– Revenue Exposurep

– Split Between Wild Catch and Farm

– Are fisheries considered a material issue?

– Do you have sourcing policy for fish related products?

– Percent Wild catch sourced sustainably?

– Certification (WWF etc)

– Constraints for sourcing?

– Guidelines and standards in place

– Aquaculture Stewardships Council Guidelines?Aquaculture Stewardships Council Guidelines?

• Step II Framework

– 40 Global Companies Contacted

– 9 responded on first inquiry


Trends The growth we seek is one that’s sustainable.

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SRI/ESG Trends in the United States

/ h d f $ b ll $ ll ( f

US SIF The Forum for Sustainable and Responsible Investments 2014 Report

• SRI/ESG assets have increased from $6.39 billion in 1995 to $6.57 trillion in 2014 (an increase of 929 percent)

• One in six investment dollars in the U.S. is invested under an SRI strategy.

• Breakdown: $4.04 trillion controlled by institutional investors

• Drivers of growth: Incorporating ESG, legislative mandates

• Most common issue: Sudan has replaced Tobacco


• New products dominated by environmental themes and ESG

Source: Social Investment Forum 2014

2014 Global Sustainable Investment Review

• The 2014 review measures sustainable investments globally in all asset classes, from public equities and fixed income to hedge funds, microfinance and impact investments.

• Global sustainable investing assets have risen 61%, from US $13.3 trillion at the outset of 2012 to US $21.4 trillion at the start of 2014.

• Sustainable investing strategies have risen from 21.5 percent to 30.2 percent of the professionally managed assets across in the regions covered.

• Regions covered include; Europe, the United States, Canada, Australia, Asia (ex Japan) and Japan after the inaugural 2012 review was published in early 2013.


• Negative screening is the largest strategy in Europe, while ESG integration now dominates in the United States, Australia/New Zealand and Asia in asset‐weighted terms. Corporate engagement and shareholder action is the dominant strategy in Canada.

Source: http://www.gsi‐alliance.org/

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Trending: Fossil Fuel-Free Investing

Early 2000sEarly 2000sApproach targeting “green” investors who wanted to avoid the

constellation of social and environmental problems associated with the

oil & gas industry.

Mid‐2000sMid‐2000s

2010s2010s

Links between “climate” risk and “financial” risk become more tenable.

“ESG” metrics developed.

Climate change, severe weather, financial risk coalesce into broad thinking

about a “Carbon Budget” and the danger of burning proven carbon

reserves.


20122012350.org‐backed Fossil Fuel‐Free Divestment movement is born at Middlebury

College in Vermont.

Do the Math

So, what does Mean?

350.org was founded by U.S. author Bill McKibben, who wrote one of the first books on global warming for the general public.

McKibben led a 20‐city coast‐to‐coast tour called Do the Math calling upon colleges, foundations and governments to sell their stock in coal, oil and natural gas companies.

Th di t t t d l d ft th S th Af i di t t i f th

Reducing the amount of CO2 in the atmosphere from its current levels of 400 parts per million to below 350 ppm which is the safe upper limit for CO2 in our atmosphere.

Answer:


The divestment movement was modeled after the South Africa divestment campaign of the 1980’s.

To date, 26 colleges and universities including Stanford and San Francisco State University voted to divest.

To date, 38 cities and 2 counties have voted to divest.

Source: www.350.org March 2015

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Climate Risk!

d

Nelson Capital Management | 39Source: http://www.nhc.noaa.gov/data/tcr/AL182012_Sandy.pdf

Hurricane Sandy

650,000 houses were either damaged or destroyed

Estimated $50 billion U.S. damage

147 fatalities

Non Discretionary Federal Spending and Climate Disruption Costs

In 2012, the Federal government spent $96 Billion to clean up the disastrous effects of climate disruption.

This exceeded federal spending on all other non defense programs including education and healthcare.

Nelson Capital Management | 40Source: CRS, OMB, NRDC estimates 2013.

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Financial Impact of Climate-related Disasters is Significant and Growing

The insurance industry estimates$

Who paid for the cost of climate-related disasters in

2012?The insurance industry estimatesthat 2012 was the second‐costliestyear in U.S. history for climate‐related disasters, with more than$139 billion in damages. But privateinsurers only covered about 25% ofthese costs, leaving the federalgovernment and its public insuranceenterprises to pay for the majority ofthe remaining claims.

$10 Billion

Uninsured Losses

$33 Billion

from Private insurers

$96 Billionfrom U.S. taxpayers


Source: AON Benfield, Artemis, NRDC estimates

Climate Risk! A Global Not Local Concern

Nelson Capital Management | 42Source: National Police Agency of Japan. 10 October, 2013. Japan Cabinet Office. On March 24, 2011, the Japanese government issued a total economic loss estimate of ¥16‐ ¥25 trillion ($197‐$308 billion).

2011 Tōhoku earthquake and tsunami

Over 125,000 collapsed and 270,000 ‘half‐collapsed’ buildings

¥16.9 trillion ($210 billion) in direct economic cost

Approx. 20,000 killed or missing

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Real Economic and Financial Market Costs

• Oxford’s Smith School of Enterprise and the Environment says nearly $6 trillion in agricultural assets per year “stranded” due to climate change related events.

• Intergovernmental Panel on Climate Change estimates climate related events will reduce global GDP by 1.0‐3.5%.


• Asian Development Bank says climate‐related events will cost East Asia 5.3% of GDP by 2100.

Sources: 1. Oxford site Study ‐ 2. “Fifth Assessment Report” by the Intergovernmental Panel on Climate Change (IPCC) ‐ .3. Bloomberg News October16th, 2013

Fossil Fuel Demand is Going in the Wrong Direction

Global energy demand is on a trajectory to increase over one‐third in the period to 2035, pointing to a long‐term average temperature increase of 3.6 °C.

To limit the increase in average global temperature to 2 °C…

‐ Oil consumption must drop by 12%

‐ Coal consumption needs to drop by 30%


Source: World Energy Outlook 2012. International Energy Association. Oil & carbon revisited. HSBC Global Research. 25 January 2013.

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Stranded Assets Could Face Substantial Declines in Value

A “Stranded Asset” is one that is worth less on the market than it is on a balance sheet due to the fact that it has become obsolete.

If the world is to have a chance of not exceeding global warming of 2°C, between 65‐80% of

coal, oil and gas reserves of publicly listed companies are ‘unburnable.’coal, oil and gas reserves of publicly listed companies are unburnable.

Proven listed reserves

1541

Current listed

Comparison of listed reserves (GtCO2)to 80% probability pro‐rata carbon budget


Source: Unburnable Carbon 2013: Wasted capital and stranded assets

reserves762

3˚C319

2˚C225

Peak Warming (˚C)

… and Diminishing Returns

The market value of the 200 listed companies analyzed with the largest fossil fuel reserves totaled around $4 trillion at the end of 2012.

− 16% to coal activities and 84% to oil and gas.

An estimated $674 billion has been allocated by the top 200 oil and gas and mining companies for finding and developing more reserves and new ways of extracting them.

Companies involved in fossil fuel extraction are spending five times more on seeking new reserves than they are returning capital to shareholders


Source: Unburnable Carbon 2013: Wasted capital and stranded assets

new reserves than they are returning capital to shareholders.

Policies and prices in the countries where fossil fuels are extracted, marketed and combusted – will affect which particular fossil fuel assets turn out to be unburnable.

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Putting Theory into Practice

• Global Equity Fund.

• One of the first fossil fuel –free investment portfolios.

P i f l i h h i i k

Index‐based Investing.

Developed a model portfolio with characteristics of the Russell 3000 Data showed insignificant risk to the model portfolio• Posits performance correlates with growth in emerging markets. 3000. Data showed insignificant risk to the model portfolio.

Back‐tested strategy over rolling 10 year periods from 1987. Outperformed Russell 3000 Index 73% of the time.

London based Asset Manager.

Global Equity strategies with focus on resource scarcity and

MSCI is a provider of investment support tools including indices, portfolio risk, performance analytics, and governance

l


q y g yefficiency.

Conducted back tests of the past 7 years which excluded fossil fuel sector from global benchmark and concluded small positive returns over the time period.

tools.

Sources: Aperio Group ”Do the Math: Building a Carbon‐Free Portfolio. 2013Impax Asset Mgt. “Beyond Fossil Fuels: The Investment Case for Fossil Fuel Divestment”. June 2013

Nelson Capital Management: Extraction Free Strategy

Standard Screening

Positive Screens:

We seek to invest in companies with:

• High quality products and services

• Exceptional research and development

Extraction Free Screening

Positive Screens:

We seek to invest in companies with:

• High quality products and services• Exceptional research and development

• Strong responsiveness to consumers

• Demonstrated leadership in environmental

sustainability, workplace practices, social

impact and corporate governance

Avoidance Screens:

We seek to avoid investing in:

• Major producers of tobacco, alcohol, gambling,

weapons, and adult entertainment

• Companies we assess to have worst‐in‐class or

egregious records of performance on:

• Exceptional research and development

• Strong responsiveness to consumers

• Demonstrated leadership in environmental

sustainability, workplace practices, social

impact and corporate governance

Avoidance Screens:

We seek to avoid investing in:

•Companies involved with the extraction of non‐

renewable natural resources

•Companies that do not meet the Nelson


– The environment

– Treatment of workers, communities or

human rights

– Product safety or marketing practices

– Corporate governance

• Companies with direct involvement in major

indigenous peoples, controversies or direct

economic ties to repressive regimes (e.g.,

Sudan)

•Companies that do not meet the Nelson

Standard SRI screens

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Extraction Free Portfolio Characteristics

Portfolio characteristics consistent with fundamental investment process.We are benchmark aware when managing overall portfolio risk.

As of December 31st 2014

Characteristics Ex‐Free S&P 500

Price/Earnings 20.0 18.6

Price/Book 3.2 2.7

Est. 3‐5 Yr. EPS Growth (%) 10.6 11.2

Dividend Yield (%) 1.8 1.9

Return on Equity 24.9 19.7

Beta 1 0 1 0


Beta 1.0 1.0

Average Turnover (%) 13.0 NA

Wgtd. Avg. Mkt. Cap. ($B) 130.8 132.4

Source: Factset 12‐31‐14

Extraction Free portfolio performance results are hypothetical and do not reflect results of actual trading. See the disclosure page for additional information

Appendix

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Scott C. Benner, CFA Scott serves as President and CEO of Nelson Capital. With over 32 years ofexperience, Scott’s main areas of focus are investment strategy, client relationshipsand managing the firm. Before joining Nelson Capital in 2004, Scott was a SeniorVice President for Wells Fargo Private Client Services. Prior to Wells Fargo, Scottwas Senior Managing Director of First American Asset Management, and ChiefInvestment officer for West One Bank.Scott holds a BS from California State Chico and an MBA from Santa ClaraUniversity, and is a member of the CFA Institute.

Suanne M. Ramar, CFA

Blaine C. Townsend, CIMC®, CIMA©

Blaine Townsend is a Partner, senior portfolio manager and a member of theinvestment committee. His main areas of focus are managing clientrelationships and directing our corporate engagement efforts. Before joiningNelson Capital, Blaine served as portfolio manager and head of Trillium AssetManagement’s California office. Prior to joining Trillium, Blaine was theAssistant Director of Marketing and Social Research for the Muir InvestmentTrust, the first socially screened municipal bond fund. Blaine holds a B.A.from the University of California Berkeley and holds the Certified InvestmentManagement Analyst (CIMA) and Certified Investment ManagementConsultant (CIMC) credentials.

Nelson Capital Investment Team

Suanne M. Ramar, CFASue is a Principal with a focus on wealth management and client relationships. Hermain areas of focus are working with foundations, endowments, and clients withspecial needs including; women who are experiencing a life‐changing financialevent such as divorce, death of a spouse, or inherited wealth. Before joiningNelson Capital, Sue was Director of Research and managed mutual funds andprivate pension funds at ISI Corporation. Sue is a member the Financial Women'sAssociation, past president of the CFA Society of San Francisco and serves onnumerous charitable boards. Sue has a BA from Mills College and an MBA from theHaas Business School, U.C. Berkeley and is a member of the CFA institute.

Lloyd Kurtz, CFALloyd is the Chief Investment Officer, senior portfolio manager and co‐heads theinvestment committee. Before joining Nelson Capital, Lloyd was a Senior VicePresident at Harris Bretall Sullivan & Smith in San Francisco. Prior to that, Lloyd wasSenior Research Analyst at KLD Research & Analytics in Boston, where heparticipated in the development of the Domini Social Index (now known as the

Consultant (CIMC) credentials.

Jon L. Manchester, CFA, CFP®Jon is a Partner, senior portfolio manager, a member of the firm’s researchcommittee and chairs the firm’s fixed income committee. His main area offocus is client relationships. Jon is also a co‐author of Nelson Capital’squarterly commentary. In 2007, Jon opened Nelson’s satellite office inMinnesota. Before joining Nelson Capital, Jon was the Director of Marketing& Promotions for the Stanford University soccer teams. Jon holds a BA fromStanford University, is a member of the CFA Society of Minnesota, FinancialPlanning Association of Minnesota and a member of the CFA Institute.

Kimberly Ryan, CFAKimberly is a Partner, senior portfolio manager and member of theinvestment committee. She manages portfolios for high net worth, trust,foundation and nonprofit clients. Prior to joining Nelson Capital, Kimberlyspent 11 years as an Investment Manager and Equity Analyst with Wellsparticipated in the development of the Domini Social Index (now known as the

MSCI KLD 400). Lloyd serves as a lecturer in Investments at the Leavey School ofBusiness at Santa Clara University, and is also affiliated with the Center forResponsible Business, Haas School of Business, U.C. Berkeley. Lloyd holds a BAfrom Vassar College and an MBA from Babson College, and is a member of the CFAInstitute.

Frank Marcoux, CFAFrank is a Partner, senior portfolio manager, a member of the firm’s researchcommittee and chairs the firm’s asset allocation committee. His main areas offocus are investment strategy, client relationships and management of the firm’sportfolio managers. Before joining Nelson Capital, Frank was senior equityresearch analyst at YMCNet Advisors. Prior to joining YMCNet Advisors, Frank wasan analyst at Willamette Management Associates, a business valuation firm. Frankholds a B.S., Business Administration from California State Sacramento and is amember of the CFA Institute.

spent 11 years as an Investment Manager and Equity Analyst with WellsFargo’s Private Bank. She was a member of the Growth Equity Team andfocused on the technology sector. In preceding years, she also coveredstocks in the consumer and telecommunications sectors. Prior to joiningWells Fargo, Kimberly worked in the consumer healthcare and investmentbanking industries. At Deutsche Banc Alex Brown, she worked on numerousdeals in the media industry including equity and fixed income financings, aswell as mergers and acquisitions. Kimberly holds a B.B.A. from the Universityof Notre Dame with a double major in Finance and Government and is amember of the CFA Institute and CFA Society of San Francisco


Stephanie W. RoncalStephanie is a portfolio manager and previously acted as the firm’s head trader.Stephanie earned her BA from San Francisco State University graduating magna cumlaude . She is a member of the Financial Planning Association.

Lena McQuillen, CFP®Lena is a portfolio manager. Prior to joining Nelson Capital Lena worked for CharlesSchwab for over eight years in customer service. Lena earned a BS from California StateUniversity Dominquez Hills, graduating Suma Cum Laude.

Debora L BreedloveDebbie is an Institutional RM Associate with Nelson Capital Management. She has been in the financial industry for over 30 years in many different capacities. Just prior to Nelson Capital, Debbie spent 10 years as a Portfolio Associate with Trillium Asset Management in their Boise, Idaho office.

Matt HollandsMatt is a portfolio manager for Nelson Capital Management. Prior to joining NCM, Matt was an Institutional Research Associate Analyst for D A Davidson’s Equity Capital

Nelson Capital Investment Team

Brian Lan, CFABrian is a portfolio manager with Nelson Capital, implementing investment strategiesfor clients in a fiduciary capacity. Before joining Nelson Capital, Brian was an AssociatePortfolio Manager at Fifth Third Bank in Chicago, working in the National HealthcareGroup analyzing healthcare companies and underwriting debt facilities. Brian holds a BSfrom the University of Notre Dame.

Loc Tuyet VuLoc is a research analyst for Nelson Capital management, focusing on both ESG andfundamental analysis. She holds a Masters of Science in Financial Analysis from theUniversity of San Francisco, a Masters in Social Work from USC, and BA in Psychologyfrom San Jose State University.

Aram Choi, CFAAram is a securities trader with Nelson Capital, executing all securities transactions onbehalf of the portfolio managers and clients. Before joining Nelson Capital, Aram spent4 t d ith A tM k i C d CA h h ibl f ll ETF

was an Institutional Research Associate Analyst for D.A. Davidson s Equity Capital Markets, covering the Banks & Thrifts industry. Matt holds a BS from the University of Oregon and is a candidate in the CFA program. Matt is a level 2 candidate for the CFA program

Tira BrownTira is a Compliance Consultant with Nelson Capital, implementing the complianceprogram in adherence with SEC regulations and Wells Fargo Bank requirements. Beforejoining Nelson Capital, Tira was an examiner at FINRA in San Francisco, conductingnumerous audits of broker‐dealers around the country.Tira holds a BS from California State University East Bay, is a member of ACAMS, and theAssociation of Certified Fraud Examiners.

Claire Veuthey

As Nelson Capital’s ESG research analyst, Claire works to ensure environmental, socialand corporate governance issues are integrated into Nelson’s investment decisions. Shealso supports Nelson’s corporate engagement efforts Prior to joining Nelson Claire4 years as a trader with AssetMark in Concord, CA where he was responsible for all ETF

trade executions for a $5B platform. In the preceding 7 years, Aram was anindependent proprietary equity trader. Aram holds a BA in Economics fromNorthwestern University.

Jonathan TakaraJonathan is a research analyst with Nelson Capital Management, specializing infundamental analysis of U.S. equities. Before transitioning to a career focus ininvestments, Jonathan worked as a general analyst for Google Maps. Jonathan holds aBS in economics from Santa Clara University and has passed all 3 levels of the CFAprogram

also supports Nelson s corporate engagement efforts. Prior to joining Nelson, Claireworked with a number of independent ESG research providers, including Sustainalytics,MSCI and Innovest, and held positions in both research and sales in London, Toronto,Singapore and Amsterdam. Claire holds a MA from Kings College London and a Licence(MA equivalent) from the Graduate Institute of International and Development Studies,Geneva. She is fluent in both French and Spanish; her Mandarin is a work in progress.


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References

• Barber, Brad. "Is Good Governance Valuable?" Presentation to The Value of Values conference, Santa Clara University, May 14, 2010.• Bauer, Rob, Kees Koedijk, and Roger Otten. "International Evidence on Ethical Mutual Fund Performance and Investment Style." Working Paper,

January 2002.• Bechetti, Leonardo, Rocco Ciciretti, and Iftekhar Hasan. "Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis."

Federal Reserve Bank of Atlanta Working Paper, April 2007.• Benson, Karen L., Timothy J. Brailsford, Jacquelyn E. Humphrey. "Do Socially Responsible Fund Managers Really Invest Differently?" Working

f l d h lPaper, University of Queensland Business School, May 2005.• Bollen, Nicolas P.B. and Mark A. Cohen. "Mutual Fund Attributes and Investor Behavior." Working Paper, May 24, 2004.• Derwall, Jeroen, Nadja Guenster, Rob Bauer, and Kees Koedijk. "The Eco‐Efficiency Premium Puzzle." Financial Analysts Journal, March/April

2005.• Edmans, Alex. "Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices." MIT Working Paper, 2007.• DiBartolomeo, Dan and Lloyd Kurtz. "Managing Risk Exposures of Socially Screened Accounts." Northfield Working Paper, 1999.• Hamilton, S., H. Jo, and M. Statman. "Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds."

Financial Analysts Journal, November/December 1993.• Hong, Harrison, and Marcin Kacperczyk. "The Price of Sin: The Effects on Social Norms on Markets." Working Paper, Princeton University, April

2006.• Kurtz, Lloyd and Dan DiBartolomeo, "Socially Screened Portfolios: An Attribution Analysis of Relative Performance." Journal of Investing, Fall

1996. • Kurtz, Lloyd and Dan DiBartolomeo. “The Long‐Term Performance of a Social Investment Universe.” Working Paper, 2010.• Luck, Christopher, and Nancy Pilotte. "Domini Social Index Performance." Journal of Investing, Fall 1993.• Luck Christopher "Domini Social Index Performance " The Investment Research Guide to Socially Responsible Investing The Colloquium on


Luck, Christopher. Domini Social Index Performance. The Investment Research Guide to Socially Responsible Investing, The Colloquium on Socially Responsible Investing, 1998.

• Renneboog, Luc, Jenke ter Horst, and Chendi Zhang. “The Price of Ethics: Evidence from Socially Responsible Mutual Funds.” ECGI Working Paper No. 168/2007. European Corporate Governance Institute. May 2007.

• Sauer, David A. "The Impact of Social‐Responsibility Screens on Investment Performance: Evidence from the Domini 400 Social Index and Domini Equity Mutual Fund." Review of Financial Economics, Vol. 6, No. 2, 1997.

• Statman, Meir. "Socially Responsible Mutual Funds," Financial Analysts Journal, May/June 2000.• Statman, Meir, and Denys Glushkov. "The wages of social responsibility." Working Paper, Santa Clara University, 2008.

Disclosures

• Nelson Capital Management is a registered investment adviser and non‐bank affiliate of Wells Fargo & Company. The information in this report was prepared byNelson Capital Management and expresses the opinions of its investment team unless otherwise noted.

• This material is for general information only, is not suitable for all investors, and is not soliciting any action from any particular investor.

• Information and opinions presented have been obtained or derived from sources we believe reliable, but we cannot guarantee their accuracy or completeness.Opinions represent NCM’s judgment as of the date of the report and are subject to change without notice.

• Affiliates of Nelson Capital may issue reports or have opinions, which are inconsistent with, and reach different conclusions from, this report.

• Asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

• Fixed income securities are subject to availability and market fluctuation. These securities may be worth less than the original cost upon redemption. Certainhigh‐yield/ high‐risk bonds carry particular market risks and may experience greater volatility in market value than investment grade corporate bonds.Government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and fixed principal value.Interest from certain municipal bonds may be subject to state and/or local taxes in some instances, the alternative minimum tax.

• Investing in foreign securities presents certain risk that may not be present in domestic securities. For example, investments in foreign and emerging marketspresent special risk including currency fluctuation, the potential for diplomatic and political instability, regulatory and liquidity risk, foreign taxation anddifferences in auditing and other financial standards.

• Real estate investments carry a degree of risk and may not be suitable for all investors.

• Past Performance does not indicate future results. The value or income associated with a security may fluctuate. There is always the potential for loss as well asgain. Returns include the reinvestment of all income.


gain. Returns include the reinvestment of all income.

• Nelson Capital Management and/or its affiliates does not provide tax or legal advice. Please consult appropriate tax or legal advisors to determine how thisinformation may apply to your own situation.

• Because the social screens applied to an SRI account/portfolio may exclude securities of certain issuers, industries and sectors for non‐financial reasons, Nelsonmay forgo some available market opportunities. As a result, the account/portfolio investment returns may be affected. In addition, Nelson will generally sell thesecurities of a company that no longer meets the social screens, its portfolio turnover rate may be higher than it would otherwise and it may be selling securitieswhen it not otherwise beneficial to do so. Nelson votes proxies consistent with social and environmental guidelines, but will not support proposals we determineto be potentially harmful to shareholder value.

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Disclosures

• Indices represent securities widely held by investors. The indices and benchmarks shown for comparison purposes are unmanaged. Their performance returns donot reflect the deduction of any advisory fees or commissions. You cannot invest directly in an index. S&P 500 Index: An unmanaged capitalization‐weighted indexof 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing allmajor industries. MSCI KLD 400 Social Index: A market capitalization‐weighted common stock index. It monitors the performance of 400 U.S. corporations thatpass multiple, broad‐based social screens. The index consists of approximately 250 companies included in the S&P 500, approximately 100 additional largecompanies not included in the S&P 500 but providing industry representation, and approximately 50 additional companies with particularly strong socialcharacteristics. The Barclays Capital Government/Credit Bond Index (formerly the Lehman Brothers Government/Credit Bond Index) is an unmanaged, market‐weighted index generally representative of intermediate and long‐term government and investment grade corporate debt securities having maturities of greaterthan one year. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately8% f th t t l k t it li ti f th R ll 3000 I d Th R ll 1000® I d th f f th 1 000 l t i i th R ll8% of the total market capitalization of the Russell 3000 Index. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell Midcap® Index measures theperformance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000®Index. MSCI EAFE® Index (Europe, Australasia, Far East)The Morgan Stanley Capital International Europe, Australasia and Far East (“MSCI EAFE”) Stock Index is anunmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia and the Far East. The NAREITEquity REIT Index includes all REITs that trade on the New York Stock Exchange, American Stock Exchange and NASDAQ National Market list, and is consideredrepresentative of the equity REIT market. The Dow Jones Commodity Index is a composite of commodity sector returns that is broadly diversified across thespectrum of commodities.

• Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or lossessimilar to those shown. In fact there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by anyparticular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. Inaddition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actualtrading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can alsoadversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific tradingprogram which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual trading results.


• Hypothetical performance returns are shown gross of fees and expenses and include the reinvestment of dividends.

• For additional information or a more complete description regarding performance calculations, please contact Nelson Capital Management at 650.376.6550