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Values-Based Investing● Socially Responsible Investing

● ESG (Environmental, Social, Governance)

● Impact Investing

Presented by Daniel M. Flannery, CFABalanced Rock Investment Advisorswww.BalancedRockIA.com

Socially Responsible Investing (SRI)

In the beginning...

A Brief History of SRIAncient origins

Judaism, Christianity and Islam all have directives, positive and negative, around money and investing, all derived from their primary texts.

● The Torah, Talmud, Bible and Quran all discuss money and investing.● The Talmud says that the first question asked when facing judgement in the

afterlife is, "Were you honest in business?"● There are explicit guidelines now put forth by many religious groups including

the U.S. Conference of Catholic Bishops Socially Responsible Investing Guidelines and the Accounting and Auditing Organization for Islamic Financial Institutions, among many more.

Modern Socially Responsible Investing

One of the first major movements in the modern socially responsible investing era was the divestment of companies doing business in apartheid South Africa. The efforts helped turn the South African business community against apartheid. Divestment currently associated with the exclusion of fossil fuel investments.

Negative screening has been the primary method of socially responsible investing until relatively recently. Common screens exclude companies involved with:

❏ Tobacco products❏ Alcohol❏ Gambling❏ Pornography❏ Guns & Weapons❏ Fossil Fuels❏ Nuclear

Shareholder Advocacy

In addition to exclusionary screens, another longstanding tradition of Socially Responsible Investing is shareholder advocacy and activism.

The goal of this approach is not to avoid a company completely, but to influence its behaviors through an ownership stake (owning shares), even if that stake is small and/or symbolic, such as a single share.

This is primarily achieved through:

★ Engagement with company management★ Shareholder resolutions★ Proxy voting★ Media and PR campaigns★ Grassroots organizing campaigns

SRI Evolves

What began primarily as a method of excluding or negatively screening out investments based on moral objections, grew to include a nuanced and analytical approach of positively screening or seeking out investments based on desired criteria. Research including data and metrics on companies’ non-financial behaviors offers an opportunity to shift capital toward investments aligned with investors’ values-based preferences.

EnvironmentalSocialGovernance(ESG) Investing

A Modern Approach

Comprehensive Analysis

Rather than excluding companies based on their product category or business involvement, ESG investing is based on research that assesses the behaviors of companies across a wide range of measures under the three broad categories of Environmental, Social and Governance.

These ratings are generally used to compare companies to their peers, letting investors know which excel or fall short in their practices. Because ESG analysis looks at information not considered in traditional financial research, by including it in the investment process it can provide a complementary layer of analysis.

UN Principles of Responsible Investment (PRI)

The Principles were developed in a UN-convened process by a group of large institutional asset owners in 2005 and launched by Secretary-General Kofi Annan at the New York Stock Exchange in April 2006. They were designed to be applied by all investors, with a special focus on fiduciary institutions with long-term perspectives.

The PRI Initiative aims to help investors integrate the consideration of environmental, social and governance (ESG) issues into investment decision-making and ownership practices across all asset classes and regions, and in so doing, help contribute to the creation of a sustainable financial system.

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

A Force for Change: $59 Trillion Under Management of PRI Signatories

But What About Returns?

One of the most common things we hear is “I care about these issues, but I don’t think I can

afford to give up returns.”

The evidence indicates that ESG Investing can add value:

A comprehensive analysis by Deutsche Bank in 2012 of existing research “looked at more than 100 academic studies of sustainable investing around the world… 56 research papers, as well as 2 literature reviews and 4 meta studies” and came to the following remarkably positive conclusions.

Sustainable Investing, Establishing Long-Term Value and Performance; DB Climate Change Advisors, June 2012

➔ “89% of the studies we examined showed that companies with high ratings for ESG factors exhibit market-based outperformance”

➔ “100% of the academic studies agree that companies with high ratings for CSR and ESG factors have a lower cost of capital”

➔ Interestingly, the study generally found that using an exclusionary, more classic approach to SRI was generally neutral in its impact on performance, but that using ESG ratings positively affected investment selection from a cost of capital and market performance standpoint.

Sustainable Investing, Establishing Long-Term Value and Performance; DB Climate Change Advisors, June 2012

Traditional SRI Correlations with Performance

Sustainable Investing, Establishing Long-Term Value and Performance; DB Climate Change Advisors, June 2012

ESG Ratings Correlations with Performance

Environmental Factors

Environmental Themes & Key Issues

● Climate Change○ Carbon Emissions○ Energy Efficiency○ Product Carbon Footprint○ Financing Environmental Impact○ Climate Change Vulnerability

● Natural Capital (Resources)○ Water Stress○ Biodiversity & Land Use○ Raw Material Sourcing

● Pollution & Waste○ Toxic Emissions & Waste○ Packaging Material & Waste○ Electronic Waste

● Environmental Opportunities○ Opportunities in Clean Tech○ Opportunities in Green Building○ Opportunities in Renewable Energy

Social Factors

Social Themes & Key Issues

● Human Capital○ Labor Management○ Health & Safety○ Human Capital Development○ Supply Chain Labor Standards

● Product Liability○ Product Safety & Quality○ Chemical Safety○ Financial Product Safety○ Privacy & Data Security○ Responsible Investment○ Insuring Health & Demographic Risk

● Stakeholder Opposition○ Controversial Sourcing

● Social Opportunities○ Access to Communication○ Access to Finance○ Access to Health Care○ Opportunities in Nutrition & Health

Governance Factors

Governance Themes & Key Issues

● Corporate Governance○ Board○ Pay○ Ownership○ Accounting

● Corporate Behavior○ Business Ethics○ Anti-Competitive Practices○ Corruption & Instability○ Financial System Instability

MSCI ESG Ratings Methodology, MSCI ESG Research © 2015 MSCI Inc. All rights reserved.

MSCI’s ESG Rating Framework and Process Overview

Balanced Rock Investment Advisors: Our Values+ValueTM Investment Process

Finding SRI/ESG Investment Opportunities

Green Century“Founded by non-profit environmental advocacy groups, their mission is to provide people who care about the environment a way to invest for their future. They analyze a company’s financial performance and rigorously screen companies for their environmental standards. As shareholders, they advocate that companies improve their environmental policies and practices and help reduce shareholder risk.”

Calvert“Calvert seeks to deliver on what it calls the four pillars of responsible investing. These pillars are financial performance, superior research, shareholder engagement and inclusive prosperity and impact. Calvert Seeks to gain a comprehensive understanding of the impact an investment could have on society both positive and negative in order to generate investment returns and avoid risks. Calvert seeks to actively engage with companies on behalf of their investors with a focus on environmental, social and governance issues.”

Trillium“Trillium manages portfolios for high net worth individuals and multi-generational families. They integrate environmental, social, and governance factors into their equity, balanced, and fixed income portfolios, seeking both impact and performance.”

Finding SRI/ESG Investment Opportunities continued..

Domini Social Investments LLC“Domini Social Investments LLC is a woman-owned and managed SEC-registered investment adviser that specializes exclusively in socially responsible investing. They serve individual and institutional investors who wish to create positive social and environmental outcomes while seeking competitive financial returns.”

TIAA-CREF Social Choice Equity Fund“This fund's investments are subject to certain environmental, social and governance criteria. The evaluation process favors companies that are strong stewards of the environment; devoted to serving local communities; committed to higher labor standards; dedicated to producing high-quality and safe products; and those managed in an exemplary or ethical manner.”

Parnassus Investments“Parnassus Investments manages six funds. They follow a fundamental investment process to evaluate the intrinsic value of a company based on the future relevancy of the company's products or services, sustainable competitive advantages and management.”

IMPACT InvestingA Targeted Approach to Positive Outcomes

What’s Your Target?

Issue-based Impact:

Curbing Climate Change

Worker Empowerment

Education

Healthcare Services

Food Systems

Low-income Housing

Place-based Impact:

Neighborhood, City, State or Region focused

Neighborhood Development Organizations

Community Development Finance Institutions

Geographically focused Charitable Organizations

Local Social Entrepreneurs

Ready, aim... make an IMPACT

Spectrum of Capital

This chart shows how investments can be classified along a spectrum between traditional financial-only returns to philanthropic impact-only returns.

By looking at the colored bars along the top, you can see that most categories of values-based investments meet multiple criteria as they move from one end of the spectrum to the other.

Finding Impact Investment Opportunities

Boston Community Capital“Boston Community Capital is a nonprofit community development financial institution. Since 1985, we have invested over $1 billion in projects that provide affordable housing, good jobs, and new opportunities in low-income communities, connecting these neighborhoods to the mainstream economy.”

Jamaica Plain Neighborhood Development Corporation (JPNDC)“JPNDC’s mission statement: To promote equitable development and equal opportunity in Jamaica Plain and adjacent neighborhoods through affordable housing, organizing, and economic opportunity initiatives that improve the lives of low- and moderate-income people and create a better community for all.”

Cooperative Fund of New England“Since 1975, the Cooperative Fund of New England has provided over $37.4 million in crucial, affordable financing to cooperatives and nonprofits across New England and eastern New York State. Not only have these funds created and retained thousands of jobs and housing units, often in underserved communities, but they have strengthened the user-owned, green cooperative economy.”

Finding Impact Investment Opportunities continued..

The New Hampshire Community Loan Fund“The New Hampshire Community Loan Fund collaborates with a wide range of donors and lenders, and with business, nonprofit and government partners. Together, we provide the financing and support that people with low and moderate incomes need to have affordable housing. Quality jobs. Child care and early education for their children. And to become financially independent.”

Local Enterprise Assistance Fund (LEAF) - Based in Brookline!“LEAF’s mission is to promote human and economic development by providing financing and development assistance to cooperatives and social purpose ventures that create and save jobs for low-income people. Since its founding over 30 years ago, LEAF has invested and leveraged over $91 million, resulting in the creation or retention of more than 6,600 jobs.”

Common Capital“Common Capital is a community loan fund and non-profit organization that is committed to a thriving local economy in order to create positive social and community impacts. We align capital and other resources to community needs and opportunities. We accomplish this by providing financing and business assistance to small businesses and high-impact community projects.”

Thank You!Good Night and Happy Values-based Investing!