Normal investing page - Sustainable Investing

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Investing Ideas

Thoughts and ideas targeting sustainable investing strategies executed through various registered and non-registered sustainable investment funds and products such as mutual funds, Exchange Traded Funds (ETFs). Exchange Traded Notes (ETNs), closed-end funds. Real Estate Investment Trusts (REITs) and Unit Investment Trusts (UITs). Coverage extends to investment management firms as well as fund groups.

48% increase Y-O-Y in sustainable fund listings during 1H 2023

The Bottom Line: 59 new listings of sustainable mutual funds and ETFs during the first six months of the year offer investors additional investment options. A combined total of 59 sustainable mutual funds and ETFs were launched during the first six months of 2023 versus 40 funds last year A combined total of 59 sustainable¹ mutual funds and ETFs were launched during the first six months of 2023, though the end of June². Of these, 35 new fund launches consisted of registered mutual funds, for a total of 139 share classes. These were dominated by the launch of 27 sustainable funds/120 share classes linked to the introduction of Fidelity sustainable target date funds. At the same time, 24 ETFs were listed during the first six months of the year. This compares to a combined total of 40 funds issued during the comparable period in 2022, for an increase of 47.5%. While ETFs dominated the new issue calendar in the first three months of the year, leadership was assumed by mutual funds in the second quarter of 2023. In the first quarter, 18 ETFs were launched, followed by six ETFs in the second quarter. On the other hand, only six mutual funds/15 share classes were introduced in the first three months of 2023 while a total of 29 mutual funds/127 share classes were brought to market during the second quarter. Mutual fund listings were dominated by Fidelity’s launch of two separate sustainable target date mutual fund investment products The 27 mutual fund offerings introduced by Fidelity involved the launch of two separate sustainable target date mutual fund investment products pitched to (1) employer-sponsored retirement plans, Individual Retirement Accounts, 403(b) plans, etc. as well as (2) through investment professionals and individuals. The target date funds intend to invest at least east 80% of assets in underlying funds that are (i) Fidelity funds that invest in securities of issuers that have proven or are displaying improving sustainability practices or positive environmental, social and governance (ESG) characteristics, (ii) Fidelity index funds that track an ESG Index, and (iii) Fidelity funds that do not have a principal ESG investment strategy but invest at least 80% of assets in U.S. and international sovereign or government-related debt securities that are believed to have positive ESG characteristic. Fidelity uses its own proprietary ESG rating process to identify eligible securities, including third-party data. In addition, Fidelity will avoid investments in issuers that are directly engaged in, and/or derive significant revenue from, certain industries. A pullback in ESG investment product offerings has not been observed A recently published research report disseminated by RBC Capital Markets and reported on Bloomberg posits that fund managers “have grown weary of the growing political scorn aimed at the environmental, social and governance label.” According to the report, “thematic exchange-traded funds – ones that focus on stocks around a particular subject – have taken over as the most common way to launch products in areas like clean energy or gender diversity.” This is based on RBC’s research showing that 56% of sustainable ETF debuts so far in 2023 have been labeled thematic rather than ESG. Based on research conducted by Sustainable Research and Analysis, RBC’s conclusion is premature. First, as noted above, the pace of new sustainable mutual funds as well as ETF listings gained momentum during the first six months of the year. A total of 59 funds were launched in 2023 versus 40 funds in the comparable period last year, for an uptick of almost 48%. This included 24 ETFs, down slightly from 28 listed in 2022 but displaying a strong record of new listings in the first quarter, and 35 mutual funds, up from just 12 last year over the same period. A combined total of 24 ETFs were launched in 2023, including nine funds that reference ESG in their name, or 37.5% of funds. This compares to 40% of ETFs in operation at the end of June 2023 that reference ESG in their names, for a slight 2.5% differential. As for mutual funds, none of the new sustainable funds launched in 2023 reference ESG in their names. This, however, should be viewed within the context of the existing universe of sustainable mutual fund offerings as of June 2023, 509 funds in total/1333 share classes, of which only 12% reference ESG in their names. The term sustainable appears more often than ESG in fund names generally, but regardless of fund name, a sizable number of newly launched or existing sustainable mutual funds and ETFs, as defined, disclose in regulatory filings that ESG considerations factor into their investment decision making. Number of mutual funds and ETFs launched during the first six months of the year-2023 vs. 2022Source: Morningstar Director and Sustainable Research and Analysis ¹ Sustainable funds an overarching term that encapsulates values-based funds, impact funds, thematic funds and funds that integrate ESG. These are not mutually exclusive and may also combine proxy voting as well as shareholder/bondholder advocacy. ² New mutual fund launches exclude the addition of share classes to existing funds.

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ARK Venture Fund: Another new, but risky, sustainable (ESG) investing option

Bottom Line: Newly launched ARK Venture Fund represents a risky sustainable (ESG) investment opportunity that should be prudently evaluated by financial intermediaries and individual investors.ARK Investment Management launches ARK Venture Fund Last week, ARK Investment Management LLC launched a new fund, the ARK Venture Fund, an unlisted closed-end interval fund that intends to allocate between 20% to 85% to global but largely US private early-stage companies aligned with the fund’s theme of disruptive innovation while the rest may be invested in public companies. In both cases, the fund considers environmental, social and governance factors using a risk/opportunities lens rather than attempting to achieve socially motivated outcomes. Launched on September 23, 2022, this public-private crossover fund is offering long-term oriented non-accredited and accredited retail investors an opportunity to invest, as described by the fund, in the most innovative private companies throughout their private and public market lifecycles, in the style of venture capital firms. Fund shares may be purchased for minimum investments of $500 via a platform provided by Titan, a NYC-based fintech startup that offers actively managed investment strategies. In addition to serving as an avenue for investors to potentially realize venture capital like returns over an investment time horizon of 5-10 years with a low-minimum investment threshold but at higher charged fees relative to mutual funds and ETFs, the fund represents a risky investment opportunity that should be prudently evaluated by financial intermediaries as well as direct individual investors. The fund is being launched on the heels of a record-shattering year in 2021 as trillions of dollars in pandemic-related stimulus produced a historic surge in dealmaking and exits and returns for private investing, including venture capital and private equity, surged to beat conventional benchmarks by wide margins. According to index data published by Cambridge Associates, venture capital and private equity returns in 2022 exceeded the performance of public companies tracked by the S&P 500, Russell 2000 and Nasdaq by wide margins and this is also the case for longer-term intervals. For example, in 2021 the CA US Venture Capital and US Private Equity indices were up 54.6% and 41.3%, respectively, and margins of outperformance are also evident over the trailing 5–10-year investment time horizons that are the focus of the ARK Venture Fund. Refer to Chart 1. That said, some results have narrowed due to the strong performance in recent years of a small number of growth-oriented public technology firms. But the outlook is now starkly different and the future is uncertain, particularly for short-term oriented investors and early ARK Venture Fund investors. The fund invests in risky companies that are difficult to value, it offers limited liquidity and is exposed to higher potential volatility due to investment concentrations as well as the use of leverage. Chart 1: Performance of US private equity and venture capital index returns to Dec. 2021Notes of Explanation: The indices are maintained by Cambridge Associates LLC. Private indexes are pooled horizon internal rates of return, net of fees, expenses, and carried interest. Returns are annualized. Because the US private equity and venture capital indexes are capitalization weighted, the largest vintage years mainly drive the indexes’ performance. Public index returns are shown as both time-weighted returns (average annual compound returns) and dollar-weighted returns (mPME). The CA Modified Public Market Equivalent replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME net asset value is a function of mPME cash flows and public index returns. Source: Cambridge Associates. ARK’s investment thesis: Disruptive innovation with a 5–10-year investment horizon Using its own internal research and analysis, ARK seeks to identify private, early-stage companies relevant to a particular theme that are capitalizing on disruptive innovation or that are enabling the further development of a theme in the markets in which they operate. ARK’s internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment themes and identify and take advantage of trends that have ramifications for individual companies or entire industries. The themes that ARK has identified include: Genomic Revolution Companies, Automation Transformation Companies, Energy Transformation Companies, Artificial Intelligence Companies, Next Generation Internet Companies or FinTech Innovation Companies. Further descriptive information may be found in the fund’s prospectus. Fund risks and opportunities: Risks may outweigh opportunities, especially for early investors The table below identifies some of the key fund related risks and opportunities. Fund Risks Fund Opportunities Newly launched fund without an investment track record. Fund is targeting to raise between $200-$500 million in assets during the first 12-months but may not realize the scale needed to implement its investment strategy. Non-diversified fund intending to invest in a limited number of companies: Between 15-30 public companies and 25+ private companies per year. This potentially exposes investors to greater volatility, especially in the near-to-intermediate term. Limited liquidity. The fund is a non-publicly listed interval fund that allows quarterly redemptions. Each quarter, redemptions may be limited to 5% of the fund’s NAV. While charges are below venture capital fees, at 2.75% plus an annual distribution fee of 0.65% of average daily net assets, plus additional fees, such as borrowing costs to take on leverage, the fees are considerably higher than the average fees levied by mutual funds and ETFs. Fund fees will reduce returns. The fund intends to use leverage, potentially up to 331/3% of net assets, thereby exposing investors to even higher levels of volatility. Valuation risk. Because the fund may invest a significant portion of its assets in non-publicly traded securities, there will be uncertainty regarding the value of the fund’s investments. This could, in turn, adversely affect the determination of the fund’s net asset value during the quarterly redemptions window. There is no assurance that distributions paid by the fund will be maintained or that dividends will be paid at all. Access to an asset class that’s not otherwise available to retail investors with a low minimum investment requirement. Actively managed fund that’s focused on private, early-stage companies focused on disruptive innovation, based on ARK’s proprietary research expertise and broader ecosystem. Even as the outlook for private investing has shifted in recent months, long-term investors have an opportunity to participate in venture capital-like returns that have exceeded public company results over the short to long-term time intervals. The closed-end interval fund structure benefits the ability to maintain a buy-and hold strategy. The fund is insulated from the risk of outsized redemptions and forced sales during market disruptions. The fund offers investors another sustainable investing option to the extent that their investment thesis aligns with ESG integration investing. Source: Sustainable Research and Analysis LLC

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Sustainable fund options in 529 college-savings plans have room to grow

The Bottom Line: Recent sustainable fund investment option additions to 529 college-savings plans by Fidelity still leaves significant room for growth given increased investor interest. Section 529 Savings Plan Assets: Growth in assets under management 2000 - 2021Note of Explanation: Data were estimated for a few individual state observations in order to construct a continuous time series. Source: Investment Company Institute. Observations: In early August, Fidelity Investments announced that it added sustainable investment options to five 529 college-savings plans in Connecticut, New Hampshire and Massachusetts. This investment option, a Sustainable Multi-Asset Portfolio, began operations on July 27, 2022 and became available for investment on August 1, 2022. An asset allocation fund whose assets are invested in underlying equity and bond funds managed by Fidelity, the fund invests in securities of issuers that Fidelity Management & Research Company believes have proven or improving sustainability practices based on an evaluation of such issuer's individual environmental, social, and governance (ESG) profile and in Fidelity index funds that track an ESG index. The addition, according to Fidelity, was motivated by an increased interest in ESG. According to the Investment Company Institute, assets in Section 529 savings plans were $453 billion at year-end 2021, up 14% from year-end 2020. Sustainable investment options and sustainable assets under management in 529 college-savings plans are still limited today considering a strong interest on the part of investors generally in sustainable investing. Also, the long-term investment time horizon associated with college savings initiatives synch’s up with the market-level returns achieved by certain sustainable investing strategies while potentially offering investors an opportunity to achieve sustainability preferences. For example, based on a selected set of five MSCI US and foreign stock oriented ESG Leaders indices and one ESG Focus bond index that rely on positive screening and exclusions, intermediate-to-long term results continue to favor ESG benchmarks, except for small cap ESG stocks, a fractional 1 bps lag over 10-years for the MSCI USA ESG Leaders Index and a shift in the 3-year outcome of the MSCI Emerging Markets ESG Leaders Index. (Note: Refer to recent article entitled Sustainable stock and bond funds post an average gain of 6.5% in July at https://sustainableinvest.com/sustainable-stock-and-bond-funds-post-an-average-gain-of-6-5-in-july/). That said, it should be noted that short-term results versus conventional benchmarks tend to vary. Sustainable investing options in 529 plans has significant room for growth. The addition of Fidelity’s sustainable investing option brings to about 14 the number of state sponsored college-savings plans that offer at least one sustainable investment option offered by firms such as TIAA-CREF/Nuveen, Calvert, PIMCO, Vanguard and now Fidelity, to mention just a few.

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Climate change investing through funds without sacrificing returns

The Bottom Line: A number of dedicated green bond funds so far may offer investors an opportunity to "do their bit" without sacrificing conventional returns. Performance of three green bond funds: 3-year annualized results through July 31, 2022Notes of Explanation: The three green bond funds have been in operation for at least three years and managed without a change in investment mandate. *Fund invests in US and non-US dollar securities. Sources: Morningstar Direct, fund disclosures and Sustainable Research and Analysis LLC. Observations: There has been much attention focused on the so called greenium associated with the issuance of green bonds, or the gap between what investors are willing to pay for green bonds versus traditional equivalent bonds. Less attention has been directed on the impact of the greenium on investors, either direct investors or via registered investment companies. According to a recently published paper by John Caramichael and Andreas C. Rapp with the Board of Governors of the Federal Reserve System¹, the authors found that, on average, green bonds have a yield spread that is 8 basis points lower relative to conventional bonds. That means that companies issuing green bonds enjoy funding cost advantages as compared to their conventional debt. It should be noted that the greenium is not level across all green bonds. The same study reports that the greenium is unevenly distributed to large, investment-grade issuers, primarily within the banking sector and developed economies. Also, another recent report indicates that the greenium in Europe has declined to between 1 and 2 basis points today. While advantageous for issuers of green bonds, investors on the other hand must be willing to accept potentially lower returns over time. That said, it seems that in some cases effective active portfolio management can offer investors who wish to “do their bit” and allocate capital to projects that address climate change, have an opportunity do so without sacrificing conventional returns through green bond investments. There are currently in the US seven green bond funds in operation with $1,453.4 million in assets, consisting of three index tracking ETFs and four actively managed mutual funds. These funds, however, are relatively new or their mandates have been updated such that they have not established a long track record. Four funds, including Franklin Municipal Green Bond ETF, iShares USD Green Bond ETF, PIMCO Climate Bond Fund and VanEck Green Bond ETF², fall into this category and only three funds have been in operation with a consistent investment mandate over the trailing three-year interval through July 31, 2022. One of these, the Calvert Green Bond Fund has been in operation longer. The three funds are alike in that they are actively managed, and they each invest in non-US dollar denominated green bonds in addition to USD green bonds, to varying degrees. Each of the three funds have outperformed the narrowly configured green bond-oriented ICE BofAML Green Bond Index Hedged US Index but the field of outperformance narrows when total return results are compared to a broad-based conventional benchmark widely used for relative performance evaluation by US investors, namely the Bloomberg US Aggregate Bond Index. The Mirova Global Green Bond Fund and each of its three share classes underperformed. But at the same time, all five share classes of the TIAA-CREF Green Bond Fund excelled along with two share classes offered by the Calvert Green Bond Fund. The latter, however, require minimum investments starting at $1 million. The TIAA-CREF Green Bond Fund that offers a retail share class and which has beaten the conventional benchmark over the trailing three years by between 41 bps and 69 bps (annualized) across its five share classes, net of their varying and not lowest expense ratios, illustrates that effective active management can overcome the green bond greenium and offer retail as well as institutional investors competitive returns with limited additional risk. At the same time, this investment option allows investors to “do their bit” and allocate capital to projects that address climate change.have ¹The Green Corporate Bond Issuance Premium, John Caramichael and Andreas Rapp, June 2022. ²These funds are either relatively new or their mandates were updated. In the case of the iShares USD Green Bond ETF and VanEck Green Bond ETF, their investment mandate was updated within the 3-year interval to restrict green bonds to USD denominated instruments.

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Only sustainable fund launch in July 2022 is also the first commodity fund

The Bottom Line: The only sustainable ETF launch in July 2022 is also the first commodity fund, subject to a high 80 bps expense ratio. Number of sustainable ETFs launched in 2022 classified by their broad investment categoriesSource: Morningstar Direct Observations The only sustainable ETF fund launch in July 2022 is also the first commodity fund in the sustainable ETF space. The Harbor Energy Transition Strategy ETF (RENW), sub-advised by Quantix Commodities LP, is an index tracking fund that seeks to provide investment results corresponding to the performance of the Quantix Energy Transition index, after fees and expenses. For an index fund, RENW is offered at a steep 80 bps, relative to an average expense ratio of 35 bps and a weighted average expense ratio of 25 bps levied by 161 sustainable index tracking ETFs as of May 2022. The expense ratio falls into the higher quartile of expense ratios calculated for sustainable index tracking ETFs that range from 0.05% to 1.29%. RENW was the 28th sustainable ETF to be launched so far this year, and the 11th index tracking fund. 17 ETFs launched in 2022 have been actively managed funds. The largest number of newly listed ETFs in 2022 have been equity and fixed income funds. The largest number of new launches occurred in April when 7 ETFs commenced operations while none were listed in May of the year. Launched just as most commodity prices have started to put the brakes on recently (the Bloomberg Commodities Index, which tracks more than 20 commodity futures including energy, metals, and livestock, has declined 19% since this year's most recent high reached on June 9), the fund pursuant to its underlying index will be composed of futures contracts on physical commodities associated with the accelerating transition from carbon-intensive energy sources, such as petroleum, crude oil and thermal coal, to less carbon-intensive sources of energy, such as natural gas, ethanol, wind power, and solar power. The following commodity futures are eligible for inclusion in the Quantix Energy Transition index at this time: copper, aluminum, nickel, zinc, lead, natural gas (U.S.), natural gas (U.K.), natural gas (Europe), silver, palladium, platinum, soybean oil, ethanol and emissions based on European Union Allowances (EUA) and California Carbon Allowances (CCA).

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Investing in carbon credits with a long-term view and diversification

The Bottom Line: New carbon credit futures investment options posted outstanding 2021 results and diverged in 2022, but a long-term view and diversification are warranted. Some of the best performers in 2021 were carbon credit futures funds that gained 126.4% While sustainable ETFs registered an average gain of 12.4% in 2021 followed by a drop of -7.15% in January of 2022, some of the best returns over both periods were registered by a small number of sustainable thematic-oriented funds that invest in carbon credit futures. The two funds in operation throughout 2021, one ETF and the other organized in the form of an Exchange Traded Note (ETN), posted gains of 108.8% and 144.0%, for an average increase of 126.4%. Two additional carbon credit futures funds were launched in October 2021 and for the month of January, the four funds posted an average gain 3.84%. Returns, however, ranged from -13.50% to 10.77%. The variation in returns was attributable to the performance of different carbon markets that played out more distinctly in late 2021 and into January 2022 due to the divergence in the results achieved in the European carbon markets versus the US. While there is a compelling case to be made for investing in carbon credits, especially for long-term sustainable investors able to tolerate near-term price fluctuations, the January results illustrate the benefits of diversification. When investing in carbon credit funds, geographic diversification across a basket of emissions-related mechanisms can cushion price volatility. Carbon credits linked to emissions-related mechanisms operating as cap-and-trade regimes intended to reduce CO2 Carbon credits or allowances are financial instruments that represent a ton of CO2 and other greenhouse gas emissions removed or reduced from the atmosphere pursuant to an emissions-related mechanism, such as the EU Emission Trading System (EU ETS), the California Carbon Allowance (CCA), which is also tied to the Canadian province of Quebec’s cap-and-trade system through the Western Climate Initiative, and the Regional Greenhouse Gas Initiative (RGGI) that covers the US states from Virginia to Main. Considered the world’s major emissions related mechanisms operating on the cap-and-trade principle, they are not alone. There are other carbon pricing initiatives in operation or are being developed throughout the world, for example the UK, China and South Korea. In a cap-and-trade regime, a limit or cap is typically set by a regulator, such as a government entity or supranational organization, on the total amount of specific greenhouse gases, such as CO2 that can be emitted by regulated entities, like manufacturers or energy producers. The regulator then issues or sells “emission allowances” to regulated entities that may then buy or sell the emission allowances on the open market. To the extent that the regulator may then reduce the cap on emission allowances, regulated entities are thereby incentivized to reduce their emissions; otherwise they must purchase emission allowances on the open market, where the price of such allowances will likely be increasing as a result of demand, and regulated entities that reduce their emissions will be able to sell unneeded emission allowances for profit. Commodity futures contracts linked to the value of emission allowances are known as “carbon credit futures.” Role of emission-related mechanisms in combating climate change strengthened at COP26 As a tool for reducing greenhouse gas emissions cost-effectively, emission-related mechanisms can play an important role in combating climate change¹. This approach was strengthened at the 26th Conference of the Parties (COP26) recently held in Glasgow, Scotland, during which delegates from at least 193 countries agreed to several breakthrough pledges, including a commitment to reduce carbon emissions by 45% by 2030 along with various initiatives targeting emissions on methane, coal, deforestation and transport as well as progress on updating rules under Article 6 of the Paris Climate Agreement (COP 25) which reflect how voluntary carbon trading markets can be monitored to assure that reductions are real and are retired after use. In addition to offering exposure to a market segment intended to facilitate a transition to a low carbon economy, carbon credits allow investors to take a view on carbon emissions futures prices that should increase in the long term as the number of outstanding certificates are withdrawn while demand expands as entities strive to meet CO2 reduction targets. That said, investments in carbon credits are not insulated from risks. These range from supply and demand disruptions that can lead to market and volatility risk, governmental policies, economic events, and technical issues of the type recently observed in California’s CCA, to mention just a few. ¹There is some debate about the effectiveness of a carbon tax versus carbon credits. Four relatively new investment options currently available to investors Of the four investment products currently available (refer to Table 1), three are structured in the form of index tracking ETFs launched by KraneShares and managed by Krane Funds Advisors and Climate Finance Partners. These funds, KraneShares Global Carbon Allowanace Strategy ETF (KRBN), KraneShares European Carbon Allowance Strategy ETF (KEUA) and KraneShares California Carbon Allowance Strategy ETF (KCCA), commenced operations in 2020 and 2021 and they offer exposures to the largest multiple as well as single markets. They have a limited track record and their expense ratios are significantly above average, but they are also the only ETFs operating in the space. The fourth product is also passively managed but organized in the form of an Exchange Traded Note that tracks the performance on an index created by Barclays Bank PLC that is primarily linked to the EU Emission Trading System futures contracts. The iPath Series B Carbon ETN (GRN), a successor to the iPath Global Carbon ETN (GRNTF), was launched as of September 10, 1999 and is listed for trading on the NYSE ARCA. Not to be confused with an ETF, an ETN is an unsecured debt obligation of the issuer, Barclays Bank PLC. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the perceived creditworthiness of Barclays Bank PLC to satisfy its obligations as they come due. That said, Barclays Bank PLC long-term rating is A by S&P Global, a strong investment grade rating that signifies strong capacity to meet financial obligations. Further, ETNs are generally less liquid than ETFs. Carbon credit prices rose sharply in 2021 but prices diverged in January 2022 Carbon credit prices rose sharply in 2021. The IHS Markit Global Carbon Index, which combines European Union, California, the Regional Greenhouse Gas Initiative (RGGI) and most recently the UK Allowances (UKA) carbon credit futures, returned 108% in 2021. The European Union carbon allowance (EUA) futures returned 138% and the California Carbon Allowance (CCA) futures returned 73%. Each market or market segment benefited from favorable supply and demand factors and the advancement of various CO2 reduction initiatives at COP26 as previously noted. Against this backdrop, KRBN and GRN posted very strong gains of 108.83% and 144.01%, respectively. Refer to Charts 1 & 2. More recently in the month of January 2022, the IHS Markit Global Carbon Index was up 3%. At the same time, results in January diverged between European and California markets, with the former registering a gain of 11% and -12%, respectively. According to some sources, the California market experienced a buildup of speculative activity that corrected during the month of January. Still, the best approach for investors is to reduce exposure to potential volatility by investing in a more balanced portfolio like KRBN or by combining multiple portfolios to achieve the same result. Chart 1: 2021 Performance Results Chart 2: January 2022 Performance ResultsNotes of Explanation: Performance results=total returns. Data sources: HIS Markit, Morningstar Direct Table 1: Carbon credit futures ETFs and ETN, AUM, expense ratios, performance and strategies Fund Name AUM ($) Expense Ratio (%) Jan. 2022 TR (%) 2021 TR (%) Investment Strategy KraneShares Global Carbon Strategy ETF* (KRBN) 1,721.6 0.78 2.13 108.83 The fund seeks to maintain exposure to carbon credit futures that are substantially the same as those included in the IHS Markit Global Carbon Index designed to measure the performance of a portfolio of liquid carbon credit futures that require “physical delivery” of emission allowances issued under cap-and-trade regimes. The index includes only carbon credit futures that mature in December of the next one to two years and that have a minimum average monthly trading volume over the previous six months of at least $10 million. Eligible carbon credit futures issued by cap-and-trade regimes in the following geographic regions. (1) Europe, the Middle East and Africa, (2) the Americas, and (3) the Asia-Pacific. In addition, no single carbon credit futures contract expiring in a particular year will receive an allocation of less than 5% or more than 60% at the semi-annual rebalancing or annual reconstitution of the Index. As of year-end 2021, the Index included carbon credit futures linked to the value of emissions allowances issued under the following cap and trade regimes: the European Union Emissions Trading System, the California Carbon Allowance, and the Regional Greenhouse Gas Initiative. The UK Allowances (UKA) carbon credit futures was added prior to year-end 2021. iPath Series B Carbon ETN (GRN) 155.1 0.75% 10.54 144.01 The fund tracks the performance of the Barclays Global Carbon II TR USD Index, providing exposure to futures contracts on carbon emissions credits from two emissions-related mechanisms, but primarily the EU Emission Trading System (EU ETS). Prior to February 27, 2021, futures contracts on emission credits from the Kyoto Protocol’s Clean Development Mechanism were also eligible to be included in the Index, although the weight of those futures contracts within the index remained below 0.1%. KraneShares California Carbon Allowance Strategy ETF (KCCA)* 113.6 0.79 -13.50 NAP The fund seeks to maintain exposure to carbon credit futures that are substantially the same as those included in IHS Markit Carbon CCA Index designed to measure the performance of a portfolio of futures contracts on carbon credits issued under the California Carbon Allowance cap-and-trade regime, including carbon credits issued by Quebec since the California and Quebec markets were linked pursuant to the Western Climate Initiative in 2014. Carbon credits issued by Quebec consist of approximately 15% of the carbon credits issued under the California Carbon Allowance cap-and-trade regime. Qualifications of carbon credit futures same as KraneShares Global Carbon Strategy ETF. KraneShares European Carbon Allowance Strategy ETF* (KEUA) 26.2 0.79 9.30 NAP The fund seeks to maintain exposure to carbon credit futures that are substantially the same as those included in IHS Markit Carbon EUA Index designed to measure the performance of a portfolio of futures contracts on carbon credits issued under the European Union Emissions Trading System cap-and-trade regime. Qualifications of carbon credit futures same as KraneShares Global Carbon Strategy ETF. Notes of Explanation: *Fund names change effective 12/3/2021 as well as investment objectives and strategies that now seek to achieve results in line with the index rather than exceed the performance of the index while at the same time preserving some strategy flexibility. Sources: Morningstar Direct and Sustainable Research and Analysis research based on fund prospectuses

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Sustainable investing with SPACs

The Bottom Line: Special Purpose Acquisition Companies (SPACs) include sustainable investing options but structural considerations are a deterrent while current valuations have reached lofty levels. Special Purpose Acquisition Companies (SPACs) include sustainable investing options but structural considerations are a deterrent while current valuations may be lofty The very hot market for SPACs, or special purpose acquisition companies, has also introduced potential investment opportunities for sustainability-minded retail and institutional investors[1]. In more recent years, in addition to SPACs established solely to raise capital through an initial public offering for the purpose of acquiring unspecified existing companies, a significant number of SPAC offerings have been issued with an investing strategy focused on social and environmental themes, the achievement of impact as well as the integration of ESG in the investment process. In fact, according to research conducted by Sustainable Research and Analysis, the SPAC universe, which consists of 533 listed entities with a combined deal value of $171.0 billion, also includes 163 SPACs, or 31% outstanding SPACs as of mid-March 2021 based on deal value that can be classified under one of these sustainable investing strategies. Refer to Chart 1. That said, caution is advised before investing, for at least two reasons. First, SPACs have two years to search for a private company with which to merge or negotiate an outright acquisition and in that way bring the company public. As a result, all other considerations aside, the fulfillment of a given SPAC’s business objectives may not ultimately entirely align with the expectations of sustainable investors. Second, legitimate concerns have been raised about whether SPAC issuance has gone too far and caution flags have surfaced regarding their current lofty valuations. SPACs are publicly traded companies with no commercial operations. Rather, these are shell companies established solely to raise capital through an initial public offering (IPO) for the purpose of acquiring unspecified existing companies. They are commonly referred to as blank check companies. SPACs are formed by a founder(s), usually, but not always, experienced business executives with strong reputations and operational track records who provide the initial Capital. SPACs raise cash in an IPO and then have two years to search for a private company with which to merge or negotiate an outright acquisition and in that way bring the company public. The SPAC market may be infected by “irrational exuberance” During 2020 there were 248 SPAC initial public offerings for total proceeds of $82.4 billion, which was a high water mark for SPACs offerings based on tracking since 1990, and nearly six times the level of prior years. Refer to Chart 2. While becoming a publicly listed company provides significant benefits, companies have been electing to remain private longer for various reasons, including the complexities of the traditional IPO process as well as its inherent uncertainty for the companies pursuing it. This dynamic has helped mold the current market opportunity for SPACs by generating a meaningful backlog of potential IPO candidates. In fact in 2020, a very strong year for IPOs during which time $85.2 in deal value was realized, SPACs almost surpassed that level but just missed out by about $2.8 billion. The pace of SPAC issuance has continued into 2021 through the end of February. To-date, 189 deals valued at $60.2 billion or 73% of 2020 total have come to market. This is almost 2.5X greater that the 59 IPOs valued at $24.3 billion that were launched during the same time interval last year. Also, SPAC valuations have reached lofty levels, with some seeing significant run ups following announced mergers or acquisitions. At these SPAC IPO volumes and excessively high valuations in some cases, it’s increasingly difficult to argue that “irrational exuberance” has not infected the market for SPACs. 163 sustainable SPACs account for $47.1 billion in deal value, or 31% of the SPAC universe While definitions and commonly accepted industry standards for categorizing investment products and providing related disclosures to investors are still evolving, a review of SPAC prospectus disclosures, illustrated for a selection of offerings set out in Table 1, combined with proposed classification framework[2], served as the basis for cataloguing the existing universe of sustainable SPACs. According to research conducted by Sustainable Research and Analysis, 163 out of 533 listed SPACs or 31% of outstanding SPACs deal value pursue business strategies that are aligned either partially or entirely with sustainable investing strategies that fall into the following categories: health, ESG integration, new energy, education, social infrastructure, education/health, inclusive economy and impact (UN SDG-Focused). Within these eight sustainable investing-labelled categories, the largest three categories account for 91.9% of deal value. Within this segment, the health sector-oriented SPACs dominate, with a total of 79 SPACs and $18.6 billion in deal value, followed by ESG integration that has been adopted by 42 SPACs and new energy that make up 27 SPACs and $8.1 billion in deal value. [1] While definitions continue to evolve, sustainable investing refers to a range of five overarching investing approaches or strategies that encompass: values-based investing, negative screening (exclusions), thematic investing, impact investing and ESG integration. Shareholder/bondholder engagement and proxy voting may also be employed along with one of more of these strategies that are not mutually exclusive. [2] Promoting the Continued Growth and Development of Sustainable Investing in US Mutual Funds and ETFs: A Three-pronged Proposal to Address Misunderstanding and Confusion that Have Arisen in the Sector. Michael Cosack and Henry Shilling, May 2020.

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Tesla now eligible for addition to the S&P 500 ESG Index

The Bottom Line: Tesla, already a member of some leading US equity ESG indices, is now eligible for addition to the S&P 500 ESG Index.Tesla now eligible for addition to the S&P 500 ESG Index Tesla was in the news again, this time in connection with the addition of the stock as a member of the S&P 500 Index, effective on Monday, December 21st. Given its market value of around $659 billion, the stock entered the benchmark as a top 10 constituent along with tech giants such as Microsoft, Apple, Amazon, Alphabet and Facebook that together make up 23.49% of the S&P 500 . Tesla’s entry into the S&P 500 index, at 1.56% of the index weight as of December 22, 2020, means that the stock is likely to be added to positions in US large cap portfolios that pursue environmental, social and governance (ESG) mandates. Also, Tesla is also now eligible for consideration as a constituent in the S&P 500 ESG Index. Should this take effect at the next rebalancing or sooner provided the company passes S&P’s ESG screens, the S&P 500 ESG will follow a trail already blazed by two leading ESG indexers, namely MSCI and FTSE. These two firms have already incorporated Tesla into their US large to-mid cap indices but the security is less commonly held among the largest ESG large cap equity funds. This is now likely to change. S&P 500 ESG Index A relative newcomer, the index was launched in January 2019. It is a broad-based index designed to measure the performance of securities meeting S&P’s sustainability criteria while maintaining similar overall industry group weights in the S&P 500. Constituents of the index must be part of the S&P 500 and are qualified based on ESG scoring or excluded due to engagement in certain business activities or controversies. The top 10 holdings, which still exclude Tesla, account for 35.49% of the index weight. Refer to Table 1. As the index is rebalanced annually, effective after the close of business day of April, Tesla would ordinarily not be added until April 30, 2021. That said, Tesla could be added earlier via an extraordinary rebalancing in line of the one that occurred in September of this year when S&P made the decision to exit thermal coal companies. The index, based on backcasting, has beaten the S&P 500 in each of the last 1-year, 3-years, 5-years and 10 years to November 30 with positive performance differentials ranging from 28 bps to 2.16%. Refer to Chart 1. MSCI USA ESG Leaders Index The index tracks large and mid-cap companies in the US with high ESG scores relative to their sector peers, and is used as the reference index for the $2.7 billion ESG-oriented passively managed iShares ESG MSCI USA Leaders ETF. As of November 30, 2020, Tesla accounted for 3.26% of the index weight that together with technology giants Microsoft Corp. Alphabet C and A, represent a total weight of 19.7% within the index’s top 10 holdings that on a combined basis account for 32.56% of the index weight. Refer to Table 1. Unlike the other two leading securities market ESG indices, the MSCI USA ESG Leaders Index is the only one that has been underperforming its parent index, the MSCI USA Index, on a long-term basis. The index has lagged over the 1-year, 3-year, 5-year and 10-year intervals to November 30 by a range from 8 bps to 2.1%. At the same time, the MSCI USA ESG Leaders has outperformed the S&P 500 Index, except over the 10-year interval. Refer to Chart 1. FTSE4Good US Select Index The index is comprised of US companies that are screened for certain environmental, social, and corporate governance criteria and specifically excludes stocks of certain companies various industries such as adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power, to name just a few. Included as an index member since the end of 2016, Tesla is one of the top ten index members and accounts for 1.55% of the benchmark’s weight along with nine other companies that make up 29.7% of the benchmark. Refer to Table 1. FTSE4Good US Select Index serves as the underlying benchmark for the largest sustainable passively managed mutual fund, the $10.0 billion Vanguard FTSE Social Index Fund. The index has outperformed its underlying benchmark over the 1-year, 3-year and 5-year time intervals by a range from 1.1% to 2.1%. Refer to Chart 1. Sustainable (SUSTAIN) Large Cap Equity Index The index, initiated as of June 30, 2017 with data back to December 31, 2016, tracks the total return performance of the ten largest actively managed large cap domestic equity mutual funds benchmarked against the S&P 500 Index that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons. While methodologies vary, qualifying funds must actively apply environmental, social and governance criteria to their investment processes and decision making. In tandem with their ESG integration strategy, funds may also employ exclusionary strategies along with impact oriented investment approaches as well as shareholder advocacy. Across the top ten funds that comprise the index, exposure to Tesla is limited to an average weight of 0.21%. Only two funds reported any exposure to Tesla. The largest of these funds and falling within its top 10 holdings at 1.32% of assets, is the $6.0 billion TIAA-CREF Social Choice Equity Fund. The second only Tesla holding was reported by the almost $18 billion JPMorgan US Equity Fund, with a 0.82% position that the fund has held since August of this year. Refer to Table 1. The addition of Tesla into the S&P 500 Index will likely also trigger additions to current Tesla holdings and/or the introduction of first-time positions. The SUSTAIN index has beaten the S&P 500 in each of the last 1-year and 3-years with positive performance differentials ranged from 1.8% over the trailing 1-year and 23 bps over the trailing 3-year intervals. Refer to Chart 1.

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Expanding universe of sustainable junk bond funds adopts ESG Consideration strategy

The Bottom Line: Sustainable junk bond mutual funds and ETFs expand, but the universe is dominated by funds that have adopted an ESG Consideration strategy.

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Monthly Sustainable Model Portfolios Performance Summary: December 2019

Model portfolios: Robust equity markets in December and the Vanguard FTSE Social Index Fund Investor Shares outperformance lifted the results achieved by the aggressive and moderate sustainable model portfolios beyond their conventional benchmarks while the conservative model portfolio lagged For the second consecutive month, the Aggressive Sustainable Portfolio (95% stocks/5% bonds) and Moderate Sustainable Portfolio (60% stocks/40% bonds) outperformed their conventional indices by 17 basis points (bps) and 7 bps, in that order. The Conservative Sustainable Portfolio (20% stocks/80% bonds), on the other hand, underperformed, trailing its conventional benchmark by 6 bps. Refer to Table 1.

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Sustainable Investment Funds Performance Scorecard: December 2019

Summary Stock and bond markets worldwide delivered excellent returns in 2019. In December, markets favored stocks that posted above average monthly results while bond returns continued to decelerate. Encouraging news that the US China Phase 1 trade agreement will be signed on January 15 signaled a significant de-escalation of trade tensions between the two nations that have affected markets throughout the year both positively and negatively. This factor, combined with interest rate cuts, Fed liquidity, easing anxiety regarding the strength of the US economy and prospects that the longest expansion in US history will continue, moved markets higher in December notwithstanding continuing geopolitical and domestic political uncertainties linked to the President’s impeachment proceedings. The S&P 500 posted a total return gain of 3.0%, while the Dow Jones Industrial Average and Nasdaq Composite recorded 1.9% and 3.6% increases. Outside the US, developed and emerging market equities achieved even stronger returns, with the MSCI ACWI ex USA gaining 4.4% and emerging markets climbing 7.5%. Across other asset classes, investment-grade bonds dropped -0.1%, longer-dated bonds gave up almost 3.0%, while gold and energy in that order recorded increases of 3.6% and 6.9%. Within the energy sector, natural gas was the only commodity to fall back, giving up -3.0%. The average performance of long-term sustainable funds in December, regardless of asset class or sector, a total of 3,313 funds/share classes, was 2.36%. International funds gained an average 4.11%, followed by US equity and specialty funds, up 2.70% on average and bond funds, taxable and municipals combined, added 0.77%. Funds integrating ESG factors, including some funds offered by firms that equivocate on this point, dominated the roster of 60 top and bottom performing funds in December. But there were also variations within the three fund segments, most notably across the top performing US equity and sector funds that were dominated by thematic funds focused on the alternative energy sector. A total of 16 funds that ranked within the top 10/bottom 10 funds pursue thematic investing approaches. US Equity and Sector Equity Funds/Share Classes: Average +2.70% in December

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Monthly Sustainable Model Portfolios Performance Summary: October 2019

Model portfolios: Sustainable model portfolios exceeded or matched the performance of their conventional benchmarks in October The aggressive and moderate sustainable model portfolios both outperformed their conventional indices, reversing last month’s declines, while the conservative portfolio matched results. To varying degrees, the three portfolios benefited from the outperformance delivered by the Vanguard FTSE Social Index Investor Shares relative to the S&P 500 Index. The fund posted a total return of 2.77%, or 0.60% higher than the conventional S&P 500 Index that gained 2.17% in October. The fund outpaces the S&P 500 over the last twelve months and, since the inception date of the model portfolios as of October 2012, the fund has eclipsed the conventional index by a significant 28.43%. Refer to Table 1.

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Money Market Funds and Sustainable Investing: Happy Together

Introduction Additional money market funds have jumped onto the sustainable investing[1] parade by launching or converting existing money market funds to reflect the adoption of various sustainable investing approaches, ranging from negative screening (exclusions) to ESG integration, engagement, and even some variations of impact investing. In the last five months or so, a total of 15 funds comprised of 87 share classes, a mix of prime, government and municipal money funds with constant and fluctuating net asset values (NAVs), were added to an already expanding universe of sustainable money market funds. These 15 investment vehicles, which added a combined total of $267.5 billion in net assets, consist of both existing funds whose mandates have been updated via prospectus amendments or newly launched funds offered by J.P. Morgan, Morgan Stanley, Goldman Sachs and State Street. On top of the three funds available from GuideStone, BlackRock and DWS that were already in operation, this brings the total number of sustainable money market funds currently offered to institutional investors and, to a lesser extent, retail investors, to 18 funds with about $269.5 billion in net assets as of September 30, 2019[2]. Managed by seven different firms, each one of these money market funds employs a different sustainable investing approach and methodology, including two unique impact investing strategies introduced by BlackRock and Goldman Sachs. As previously reported, the conversions and fund additions have transformed the profile of the sustainable investing landscape by ballooning the money fund segment such that it now accounts for about 23% of total sustainable investment funds under management, up from less than 1% the month prior. Additional money market fund entrants into the sustainable investing landscape is expected. Sustainable investing approaches vary across the seven firms As noted in Table 1 that lists the money market funds currently offered along with their sustainable strategies, the approaches vary across the seven firms. Even as their methodologies vary, only two firms have adopted a strictly ESG integration approach. The other five firms have each adopted varying approaches that combine one or more strategies, with two firms implementing a unique impact investing tactic either alone or in combination with other approaches. In the end, five firms have incorporated the consideration of ESG risks and opportunities into the investment decision process. This, even as the impact of environmental (E) and social (S) factors on credit and liquidity risks, on top of fundamental financial considerations, are likely to have limited impact and no upside effect given the short-term tenor of money market eligible securities, especially when such securities are held to maturity. What follows is a description of the sustainable investing strategies adopted by each of the firms and their money market funds. Guidestone Money Market Fund The fund employs a faith/religious–based approach that relies on negative screening (exclusions). As a Christian-screened mutual fund family, GuideStone aligns its investments with Christian values. The fund, like the other GuideStone funds, may not invest in any company that is publicly recognized, as determined by GuideStone Financial Resources of the Southern Baptist Convention (GuideStone Financial Resources), as being in the alcohol, tobacco, gambling, pornography or abortion industries, or any company whose products, services or activities are publicly recognized as being incompatible with the moral and ethical posture of GuideStone Financial Resources. BlackRock Liquid Environmentally Aware Fund (LEAF) The fund employs a combination of a modified ESG integration approach and negative screening (exclusions) along with an impact investing tactic. LEAF invests in a broad range of money market instruments whose issuer or guarantor has better than average performance in environmental practices. According to the prospectus filing, BlackRock uses data from independent ESG ratings vendors and may employ the use of its own models. The fund will also prohibit any investments in companies that earn significant revenue from the mining, exploration or refinement of fossil fuels or from thermal coal or nuclear energy-based power generation. BlackRock has also made a commitment to purchase or retire carbon offset credits with a portion of its revenues from the fund and make an annual payment to the World Wildlife Fund (WWF) to help further global conservation efforts. DWS ESG Liquidity Fund The fund combines ESG integration and negative screening (exclusions). Excepting for municipal securities, the fund’s prospectus notes that a company’s performance across certain ESG criteria is summarized in a proprietary ESG rating that is calculated by an affiliate of the DWS on the basis of data obtained from various ESG data providers. Only companies with an ESG rating above a minimum threshold determined by the DWS are considered for investment by the fund. The proprietary ESG rating is derived from multiple factors, including the level of involvement in controversial sectors and weapons, adherence to corporate governance principles, ESG performance relative to a peer group of companies and efforts to meet the United Nations’ Sustainable Development Goals. DWS calculates ESG ratings for municipal securities by applying a combination of positive and negative screens. From the investable universe of municipal securities, positive screens will automatically include green bonds that meet minimum standards and negative screens will exclude municipal securities with exposure to weapons, issues where more than 10% of the business is attributable to nuclear power or more than 25% of the business is derived from coal, and issues related to gambling, lottery, the production or sale of tobacco, and other sectors deemed controversial by DWS. The remainder of the investable universe of municipal securities are then scored on key performance indicators in each of three pillars: environmental, social and corporate governance. Only municipal securities with a cumulative score across all three pillars above a minimum threshold determined by DWS are considered for investment by the fund. GS Financial Square Federal Instruments Fund The funds invests only in government securities, generally securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities, including securities issued by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Home Loan Banks, or repurchase agreements that are collateralized fully by cash or U.S. Government Securities. An additional mandate adopted by the fund is to prioritize buying from bond dealers that are certified as being owned by minorities, women and veterans. According to its prospectus, the fund, which buys about half of its assets from such dealers, has since doubled in size, attracting $850 million in the first half of 2019. J.P. Morgan Money Market Funds In September, J.P. Morgan Asset Management re-branded 12 money market funds, both taxable and tax-exempt, comprised of 67 share classes with $262.4 billion in net assets by amending fund prospectuses to reflect that as part of its security selection strategy, the adviser also evaluates whether environmental, social and governance factors could have material negative or positive impact on the cash flows or risk profiles of many companies in the universe in which the funds may invest. These determinations may not be conclusive and securities of issuers that may be negatively impacted by such factors may be purchased and retained by the funds while the funds may divest or not invest in securities of issuers that may be positively impacted by such factors. Morgan Stanley Institutional Liquidity Funds-ESG Money Market Portfolio Formerly called the money market portfolio, the fund revised its name and amended its prospectus effective as of October 31, 2019 to reflect the incorporation of ESG risks and opportunities. The fund’s investment process incorporates information about ESG issues, using a proprietary ESG scoring methodology that combines third-party ESG data with proprietary views, to explicitly consider the risks and opportunities ESG factors pose to money market instruments. A rules-based process is employed to construct the portfolio that relies on security selections based on minimum ESG scores. Excluded from consideration are corporations that generate revenue from the manufacturing or production of tobacco, corporations that generate revenue from the manufacturing or production of landmines and cluster munitions (i.e., an explosive weapon that randomly scatters sub-munitions), corporations that generate revenue from the manufacturing or production of firearms, corporations that generate revenue from the mining of thermal coal or coal fired power generation and corporations that primarily generate revenue from the fossil fuel industries that Morgan Stanley has determined produce a certain level of carbon emissions. The fund may invest in green commercial paper issued by companies that would otherwise be subject to fossil fuel exclusions so long as Morgan Stanley has determined that the proceeds will not be used to finance fossil fuel generation capabilities. Finally, Morgan Stanley may engage with management of certain issuers regarding corporate governance practices as well as what the firm deems to be materially important environmental and/or social issues facing a company. State Street ESG Liquid Reserves Fund State Street Global Advisors (SSgA) integrates ESG risks and opportunities by considering ESG criteria at the time of purchase, with some exceptions that extend to U.S. government securities, securities of governments other than the U.S. government, or securities of issuers for which ESG data is limited. SSgA uses an ESG-related metric for each fund investment based on a proprietary scoring system developed by SSgA that assigns an ESG rating to each issuer. Each issuer score is comprised of two underlying components. The first measures the performance of a company's business operations and governance as related to financially material ESG challenges facing the issuer's industry based on an industry specific financial materiality framework published by the Sustainability Accounting Standards Board (SASB). The score for each applicable issuer draws on a number of independent data sources and is created using two types of industry-recognized frameworks. While these can change, at the time of launch, data metrics on a variety of ESG topics were provided by Sustainalytics, ISS-ESG (formerly, Oekom Research), Vigeo-EIRIS, and ISS Governance. Scores are subject to change at the discretion of SSgA. The second component of the score is generated using region-specific corporate governance codes developed by investors or regulators. The governance codes describe minimum corporate governance expectations of a particular region and typically address topics such as shareholder rights, board independence and executive compensation, using data provided by ISS Governance. Transforming the sustainable investment funds landscape: Money funds now account for 23% of assets Even before taking into account the sustainable funds launched by State Street, Goldman and Morgan Stanley, the rebranding of J.P. Morgan’s money market funds helped to reshape the sustainable investing landscape in part by shifting the profile of allocated assets by pushing up the value and percentages of money market funds as well as bond funds while also lifting the proportion of sustainable assets sourced to institutional investors. Based on data as of September 30, 2019, the money market funds category now ranks second with 23% of assets after US equity funds with $491.2 billion and 42.9% of the segment’s $1.1 trillion in assets. Refer to Chart 1. [1] While the definition of sustainable investing continues to evolve, today it refers to a range of five overarching investing approaches or strategies that encompass: values-based investing, negative screening (exclusions), thematic and impact investing, ESG integration and shareholder/bondholder engagement and proxy voting. These are not mutually exclusive. [2] Total net assets for State Street ESG Liquid Assets Fund not available at the time of this writing.

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Sustainable Investment Funds Performance Scorecard: September 2019

Summary The performance of equities and bonds reversed positions in September as large cap equities, tracked by the S&P 500 Index, posted a total return gain of 1.87% while investment-grade intermediate bonds ended the month lower at -0.53% on the back of higher yields. The stock market advanced as high as 2.84% at the close on September 12th just about a week after the US and China set a date for the resumption of trade negotiations in early October. But the sense of optimism engendered by the resumption of trade talks was in part eclipsed in the second half of the month by worries over weaker US economic reports, the surprise introduction of liquidity risk in the overnight funding market as well as domestic political and geopolitical uncertainties. 2.457 sustainable investment funds consisting of mutual funds/share classes, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) recorded an average gain of 0.88%. Total returns ranged from a low of -12.98% to a high of 6.59%[1]. 1,740 funds, or 71%, produced 0.00 to positive rates of return. By way of further comparison, the Sustainable (SUSTAIN) Large Cap Equity Fund Index was up 1.44% and the Sustainable (SUSTAIN) Bond Fund Index slid -0.58%. Equity Funds and Other Equity and Equity-Related Funds Equity and equity related sustainable funds, including US focused and overseas funds for a total of 1,712 funds that were in operation for the entire month, recorded an average gain of 1.32%. Returns ranged from a low of -12.98% posted by Amplify Seymour Cannabis ETF, a newly launched (July 2019) fund that relies on an ESG integration approach for investment decisions to a high of 6.59% achieved by Pzena Mid Cap Value Fund-Institutional shares, another ESG integrator. Pzena Mid Cap Value Fund-Institutional Shares seeks to achieve capital appreciation by investing in stocks of mid-cap companies using what the manager describes as a classic value strategy. According to its prospectus, the fund’s portfolio will generally consist of 30 to 80 stocks identified through a research-driven, bottom-up security selection process based on thorough fundamental research. The fund seeks to invest in mid cap company stocks that, in the opinion of the adviser, sell at a substantial discount to their intrinsic value but have solid long-term prospects. Some of the other categories of funds that registered strong performance in September included international value and small cap value funds, such as American Century NT Non-US Intrinsic Value and Pzena Small Cap Value Fund Institutional shares, up 6.22% and 5.71%, respectively. These funds also benefited from the outperformance of value versus growth stocks in September. At the other end of the range, lagging funds included small cap growth funds and gold and precious metals funds. Fixed Income Funds After a very strong August when investment-grade intermediate bonds added 2.59%, bond funds, both taxable and municipal, posted an average decline of -0.11%. Returns ranged from a low of -2.07% delivered by Schroder Long-Duration Investment-Grade Bond Fund-Inv. shares to a high of 1.27% registered by the Neuberger Berman Unconstrained Bond Fund R6. Both funds explicitly integrate ESG factors into their investment process. High yield and emerging market debt funds led the roster of the top performing funds for the month of September while long-duration and green bond funds, in particular, lagged behind. Two green bond funds, AllianzGI Green Bond Fund A and Mirova Global Green Bond A, dropped -1.04% and -1.0%, respectively. Both funds pursue a global green bonds mandate that are exposed to currency risk that may be hedged and their returns were more line with the Bloomberg Barclays Global Aggregate Index which was down -1.02% in September. Interestingly, the VanEck Green Bond Fund recently revised its mandate to eliminate currency risk exposure by adopting a revised benchmark, the S&P Green Bond US Dollar Select Index. Sustainable Investing Strategies Funds/share classes that exclusively employ an ESG integration approach in their investment management, 28 in total, dominate the 40-fund universe of leaders and laggards in September. One of these funds, Mainstay MacKay Infrastructure Bond Fund hedges its approach by noting in its prospectus that it may integrate ESG. Five additional funds/share classes combine ESG integration with one or more sustainable investing approaches, such as shareholder/bondholder engagement and proxy voting or negative screening (exclusions). When combined, ESG integration has been adopted as a strategy by 33 funds or 66% of the universe consisting of the top and bottom performing investment funds. The remaining seven investment vehicles are dominated by funds that employ negative screening (exclusions) either exclusively or in combination with other strategies. Of these, only two funds/share classes limit themselves totally to negative screening (exclusions). These include American Century NT Non-US Intrinsic Value Fund and the Xtrackers Municipal Infrastructure Revenue Bond ETF. Both funds omit tobacco stocks from their portfolios. September Performance Scorecards Notes of Explanation covering equity and all other funds: Results are total returns. For funds that have rebranded (by adopting via a prospectus amendment a sustainable investing strategy) during the last 12-months, returns for periods longer than one-month may not reflect results achieved pursuant to the newly adopted sustainable investing strategies. Equity funds include all US and international equity as well as all other funds, except for fixed income funds, a total of 1,712 funds/share classes, ETFs, ETNs with performance for the full month of September 2019. Blanks for other time periods indicate that the fund was not in operations during the entire time interval. Top 10 defined as top 10 funds, excluding multiple share classes of the same fund (i.e. if more than one share class landed in the top of bottom listing of the 10 funds only the best performing one fund/share class is included. V=Values-based strategy, E=Exclusionary strategy, Impact/Theme=Impact and/or thematic strategy, ESG=environmental, social, governance integration, S/P=shareholder/bondholder engagement and proxy voting. Sources: STEELE Mutual Fund Expert, Morningstar data and Sustainable Research and Analysis. Notes of Explanation covering fixed income funds: Results are total returns. For funds that have rebranded (by adopting via a prospectus amendment a sustainable investing strategy) during the last 12-months, returns for periods longer than one-month may not reflect results achieved pursuant to the newly adopted sustainable investing strategies. Fixed income funds include short and long-term taxable and tax-exempt bond funds and ETFs, a total of 746 funds/share classes, ETFs, ETNs with performance for the full month of September 2019. Blanks for other time periods indicate that the fund was not in operations during the entire time interval. Top 10 defined as top 10 funds, excluding multiple share classes of the same fund (i.e. if more than one share class landed in the top of bottom listing of the 10 funds only the best performing one fund/share class is included. V=Values-based strategy, E=Exclusionary strategy, Impact/Theme=Impact and/or thematic strategy, ESG=environmental, social, governance integration, S/P=shareholder/bondholder engagement and proxy voting. Sources: STEELE Mutual Fund Expert, Morningstar data and Sustainable Research and Analysis. [1] Excludes Columbia India Consumer ETF, up 8.37% in September and listed by Morningstar as an SRI fund, however, this could not be verified via the fund’s prospectus.

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Sustainable Investment Funds Performance Scorecard: August 2019

Summary A volatile August ended the last week of the month as it began but with opposite outcomes, driven by trade tensions between the US and China, geopolitical uncertainties and signs of an economic slowdown in the US and overseas. In the end, the broad market as measured by the S&P 500 Index closed down -1.58%. Bonds, on the other hand, benefited from lower yields and delivered a blowout month, up 2.59%, based on the Bloomberg Barclays US Aggregate Index. Sustainable mutual funds/share classes, ETFs and ETNs, a total of 2,262 funds across all types from equity to fixed income, generated an average total return of -1.42%. Leading and lagging funds ranged from a high of +11.17% to a low of -13.12%. Equity Funds and Other Equity and Equity-Related Funds During a month when bonds outperformed US stocks, equity and equity related sustainable funds, including mutual funds/share classes, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) posted a negative average total return in August of -2.17%. Total returns ranged from a high of 11.17% recorded by Franklin Gold and Precious Metals Fund-Adv. to a low of -13.12% registered by the Amplify Seymour Cannabis ETF. Both funds employ ESG integration approaches.

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Sustainable International Mutual Funds and ETFs Have Expanded Rapidly

Sustainable international mutual funds and ETFs and foreign funds in particular expand rapidly The international equity mutual funds segment, comprised of broad-based mutual funds and exchange-traded funds (ETFs), has experienced significant growth . In the last 24 months, international funds expanded from 151 funds/share classes with $15.4 billion in assets under management to 593 funds/share classes and $99.8 billion in assets under management, or almost a seven-fold increase. Just in June, two fund firms, including Aegon and Virtus, launched 2 new funds (7 share classes) while a third, Vanguard, added two share classes to an existing fund. While market movement and net new flows have been a factor, the most significant driver in the two-year increase is the rebranding of existing funds by conventional investment management firms that have adopted sustainable investing strategies, mainly in the form of ESG integration practices, primarily targeted to institutional investors. In the process, the sustainable profile as well as the lineup of the leading firms in this segment and the rank ordering of funds have also changed; and while this segment is comprised of various investment themes or objectives, the largest segment, with $44.5 billion in assets or 44.6% of the segment’s total net assets as of June 2019, is sourced to large cap growth, value and hybrid funds that invest in foreign securities, excluding the US. Otherwise, funds in this segment range from country specific and regional-oriented funds, such as Japan, Europe and Pacific/Asia-oriented stock funds, to thematic funds focusing, for example, on alternative energy, as well as emerging market funds. The recent growth of the international funds segment and the profile of funds that comprise this universe, including their sustainable investing orientation, are described in this research article along with the recent creation of a sustainable foreign fund index which was launched as of June 30, 2019. See Chart 1.

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Monthly Sustainable Mutual Funds Cash Flows: February 2019

Sustainable funds achieved another new all-time high at the end of February, reaching $485.4 billion in net assets versus $440.2 billion in January with net cash inflows contributing $1.67 billion or 2.8% Sustainable funds, including mutual funds, ETFs and ETNs, again registered another monthly all-time high of $485.4 billion in assets as of February 28, 2019, with the net addition of $45.3 billion for the month versus $49.8 billion added in January 2019. Of this sum, $1.7 billion is attributable to net positive inflows, but additions of $31.1 billion due to repurposed or rebranded funds and $12.5 billion attributable to market movement had a more significant impact on the growth of sustainable assets. Refer to Chart 1. Mutual funds, which account for 97.6% of the segment’s assets under management (AUM), were responsible for 98.4% of the month-over-month gains. The assets were distributed across 1,320 mutual funds/share classes and 129 ETFs/ETNs offered by 127 separate firms. Eight separate fund groups, including four first time firms, either repurposed existing funds for the first time or added to the roster of existing funds by repurposing additional funds and share classes, for a total of 30 funds and 124 share classes. The largest of these was MainStay Investments (NY Life) that repurposed two funds, with 14 share classes, and total net assets in the amount of $11.7 billion. The other three firms include Sterling Capital Management (subsidiary of BB&T), MassMutual and Front Street Capital Management, Inc. (Clark Fork Trust) that on a combined basis added about $3.3 billion. Refer to Table 1. Top 20 sustainable fund groups of 127 firms account for $420.7 billion or 87% of the segment’s assets under management Four new fund groups joined the universe of firms offering sustainable mutual funds and/or ETFs/ETNs that, when combined with exiting fund groups, brought the total number of sustainable fund groups to 127. As noted above, the new additions repurposed existing funds. MainStay’s repurposed funds added $11.7 billion in assets across two funds that catapulted the firm into the top 10 sustainable fund group ranks. The top 10 fund groups account for $352.8 billion in assets under management (AUM), or 72.7% of the segment’s total. This level of concentration represents a 2.8% decline from last month’s 75.5%. American Funds Washington Mutual, with its $165.5 billion in net assets, accounts for 34% of the entire segment’s AUM. Because the segment is skewed by this fund, the average assets per fund firm is overstated at $3.7 billion. In fact, the median sustainable assets per fund group is only $268.5 million. The top 20 fund groups account for $420.7 billion in AUM, and 87% of the segment’s assets which is roughly in line with January’s level of concentration. BlackRock, including its iShares ETFs which consists of 13 funds and $4.4 billion in AUM, dropped out of the top 20 fund groups line up as its ranking fell to 21st. Existing sustainable fund firms rebranded additional funds with $16.1 billion in assets In addition to first time fund firms, four fund groups added to existing fund offerings by repurposing a total of 30 funds, 124 share classes and a combined total of $16.1 billion in AUM. The addition of Neuberger Berman’s $6.5 billion to the sustainable funds segment pushed the firm’s ranking to 11th from last month’s rank of 18th. Refer to Table 2, which identifies both the new fund groups as well as those adding to existing funds. Vanguard added an Admiral share class to the FTSE Social Index Fund Along with new share classes introduced by a number of firms, Vanguard added an Admiral Share class to the existing Vanguard FTSE Social Index Fund and in the process added $289.7 million. The Admiral Share class is subjects to a 14 basis points fee with a minimum investment of $3,000. Two sustainable funds announced closings In a relatively new development for the sustainable funds segment, two sustainable funds are in the process of closing. The $11.8 million Highmore Sustainable All Cap Equity Fund, which was launched in early 2018, closed in February 2019 while the $1.8 million Spouting Rock Small Cap Growth Fund, that had commenced operations in 2014, announced that it was intending to close as of March 20, 2019. Goldman Sachs redeems its seed capital from the JUST U.S. Large Cap Equity It was reported by the Wall Street Journal that Goldman Sachs during the week of March 4, 2019 withdrew its seed capital from the Goldman Sachs JUST U.S. Large Cap Equity ETF. The fund, which seeks to provide broad exposure to U.S. large cap equities with a focus on companies that demonstrate just business behavior as measured by JUST Capital, reported net assets in the amount of $214.4 million at the end of February. It experienced an outflow of $101.9 million, thus reducing the ETFs assets by 49% to $109.8M, according to FactSet market data as reported by Seeking Alpha on March 11, 2019. As of March 28, 2019, the ETF’s net assets were $114.5 million.

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Sustainable Large Cap Equity Funds Mostly Out of Wells Fargo Stock

Continued investment in Wells Fargo stock offers a window into differentiated approach by ESG funds versus conventional funds Wells Fargo & Company’s (WFC) pervasive and persistent misconduct, starting with the revelations, some as early as 2011, that the bank made a practice of opening millions of unauthorized accounts, exposed the bank’s poor governance and risk management practices. In addition to harming its customers, employees and shareholders in the process, the bank also attracted controversy because of its involvement in the Dakota Access Pipeline (DAPL) project. These developments uncovered weaknesses within the bank’s operations and elevated its risk exposures such that the bank’s governance and social profile suffered. This is illustrated by the ratings or scores[1] provided by third-party ESG publishers, including such firms as MSCI and Sustainalytics.

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Monthly Sustainable Model Portfolios Performance Summary: February 2019

Portfolio's Performance Summary February Results: S&P 500 up 3.21% while the Sustainable Large Cap Equity Funds Index gains 3.77%. Model portfolios: Gains recorded in February, on top of the strong increases in January, erased in their entirety the declines posted in December of last year. Universe of sustainable mutual funds and ETFs across all fund types gain an average 2.52%. Sustainable funds achieved another new all-time high at the end of February, reaching $485.4 billion in net assets versus $440.2 billion in January with net cash inflows contributing $1.67 billion or 2.8%.

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Monthly Sustainable Model Portfolios Performance Summary: December 2018

Summary This was a challenging and turbulent year for stocks and bonds. The S&P 500 Index ended 2018 down -4.38% and -9.03% in December. Intermediate-term investment-grade bonds eked out a slight 0.01% gain for the year after posting a strong 1.84% gain in December. At the same time, benchmarks tracking domestic equity and investment-grade bonds that pursue similar sustainable investing strategies, the SUSTAIN Large Cap Equity Fund Index and the SUSTAIN Bond Fund Indicator, both lagged their corresponding conventional indexes by almost 1% and .06%, respectively.

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December 2018 SRI Funds Performance Scorecard

Notes of Explanation for fixed income funds. Results are total returns. Fixed income funds include designated sustainable taxable and tax exempt bond funds and ETFs as well as money market funds, a total of 231 funds and share classes, ETFs, ETNs with performance for the full month of December. Top 10 defined as top 10 funds which may include a larger number due to more than one share class. V=Values-based strategy, E=Exclusionary strategy, Impact/Theme=Impact and/or thematic strategy, ESG=environmental, social, governance integration, S/P=shareholder engagement and proxy voting. Sources: STEELE Mutual Fund Expert, Morningstar data and Sustainable Research and Analysis. Notes of Explanation for equity and all other funds. Results are total returns. Equity funds include all designated sustainable US and international equity as well as all other funds, except for fixed income funds, a total of 1,040 funds and share classes, ETFs, ETNs with performance for the full month of December. Top 10 defined as top 10 funds which may include a larger number due to more than one share class. V=Values-based strategy, E=Exclusionary strategy, Impact/Theme=Impact and/or thematic strategy, ESG=environmental, social, governance integration, S/P=shareholder engagement and proxy voting. Sources: STEELE Mutual Fund Expert, Morningstar data and Sustainable Research and Analysis.

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New Green Bond Fund Investing Options Double in Number

Three new fund launches bring to six the number of green bond funds as of November 2018 Just in the last month, green bond funds doubled in number, with the launch of green bond mutual funds or exchange traded funds (ETFs) by Allianz Global Investors, BlackRock and Teachers Advisors. This brings to six the number of green bond funds available to investors that now include four mutual funds as well as two ETFs. While some of these have likely been in the works for some time, it may be that the latest fund introductions were timed to take advantage of recent headlines and environmental concerns to stimulate demand from interested and concerned investors for fund products dedicated to reducing greenhouse gas emissions, promoting alternative energy, and addressing climate adaptation and mitigation strategies, to mention just a few. Green bonds and green bond funds that invest in green bonds are very clearly aligned with such considerations.

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Monthly Sustainable Portfolios Performance Summary: September 2018

Summary Buoyed by robust economic growth and strong corporate earnings, the S&P 500 Index eked out narrow gain of 0.57% in September even as US stock markets reached all-time new highs. Bonds closed the month lower, posting negative results of -0.66% but recording a slight third quarter gain of 0.01%. Positive fundamentals shift investor sentiment moving into month-end: US economic growth, strong corporate profits and strong consumer confidence overcame trade, inflation and interest rate concerns. The SUSTAIN Equity Fund Index gained 0.52% in September and 7.71% in the third quarter, lagging behind the S&P 500 by 30 bps and 60 bps, respectively. In contrast to equity funds, intermediate-term investment grade sustainable bond funds outperformed the Bloomberg Barclays US Aggregate Index in September, albeit by a narrow margin of 5 basis points. Sustainable model portfolios lagged their respective indexes in September, posting results that range from a positive 0.21% to -0.37%. Sustainable funds closed September at another high point at $321.9 billion, up $11.4 billion of which $10.9 billion, or 96%, is sourced to repurposed funds. Buoyed by robust economic growth and strong corporate earnings, the S&P 500 Index eked out narrow gain of 0.57% in September even as US stock markets reached all-time new highs Performance in September across asset classes, geographic regions and styles covered a narrower 16% arc that ranged from a high of 6.85% posted by the price of Brent crude oil to a negative -9.1% recorded by the MSCI India Index.

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Monthly Sustainable Portfolios Performance Summary: June 2018

Summary • June stock and bond market performance alternated as shifting sentiments guided by strong economic growth prospects and positive geopolitical news gave way to interest rate worries and increasing concerns over a looming trade war. • The S&P 500 Index posted a gain of 0.62% while the Bloomberg Barclays U.S. Aggregate Bond Index recorded a decline of -0.12%. The SUSTAIN Equity Fund Index posted an increase of 0.90% in June while the SUSTAIN Bond Fund Indicator closed the month lower at -0.06%. • The Aggressive, Moderate and Conservative sustainable model portfolios posted slight negative results in June but delivered positive total returns for the quarter. • The sustainable funds universe consisting of 1,004 mutual funds, including share classes, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) registered an average loss of -0.54% in June, ranging from high of 4.48% to a low of -10.78%. • Sustainable funds ended the first half of 2018 at $285.9 billion in net assets, adding $1.9 billion in June bolstered by repurposed funds but experiencing $375.2 million in net outflows June Market Performance Influenced by Strong Economic Growth Prospects and Positive Geopolitical News that Gave Way to Trade Concerns and Higher Interest Rates Returns for the month of June reflected a best-to-worst performance range for major market segments from about 4.45% posted by the U.S. REIT sector per the Wilshire U.S. REIT Index, to about -5.46% for Asia-based stocks generally and China stocks in particular, per the FTSE China Total Return Index, as the yuan declined against the dollar due to a combination of selling on the part of investors and the Chinese central bank’s efforts to guide the currency lower as the trade conflict with the U.S. escalated. The broad measure of the U.S. stock market, captured by the S&P 500 Index, was up 0.62% while intermediate investment-grade bonds reversed course and recorded a decline of -0.12%.

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Sustainable Portfolios Performance Summary: March 2018

Summary The S&P 500 Index posted its second consecutive monthly decline in March, giving up -2.54% as volatility prevails in the light of shifting investor sentiments. Sustainable equity funds, as measured by the SUSTAIN Equity Fund Index, outperformed the S&P 500 benchmark by 54 basis points (bps). Sustainable model portfolios post declines but outperform their corresponding non-sustainability oriented indexes. Sustainable funds close March at $272.0 billion managed across 909 mutual funds and exchange traded funds (ETFs), adding $9.7 billion versus February as two fund groups repurpose existing funds by formally adopting ESG criteria. SUSTAIN Equity Fund Index Outperforms by 54 bps; S&P 500 Index Posts its Second Consecutive Monthly Decline in March, Giving Up -2.54%, as Volatility Prevails

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Sustainable Portfolios Performance Summary: January 2018

Summary The three sustainable model portfolios, which throughout 2017 were composed of only two funds that tracked the domestic equity and bond markets, have been reconstituted to include a third fund to capture the performance of international developed markets. The aggressive, moderate and conservative sustainable model portfolios generated gains of 5.34%, 3.79% and 1.07%, respectively. The S&P 500 Index recorded a strong start to the year, posting a 5.73% gain during the month of January, the best since March 2016, even after stocks tumbled on the next to last trading day of the month and giving up some 1.01%. Against this backdrop, the SUSTAIN Large Cap Equity Fund Index posted a strong 5.47% total return in January but lagged the S&P 500 Index by 26 bps while the universe of 778 sustainable equity and bond funds posted an average gain of 3.95%. Sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) gained $14.4 billion in net assets in January to reach $264.8 billion, or an increase of 5.7%. This gain was largely driven by strong capital appreciation/depreciation experienced during the month of January, notwithstanding the month-end pull back, net new money as well as the repurposing of existing funds. Even as Stocks Tumbled on January 30, the S&P 500 Index Recorded a Strong Start to the Year, Posting a Gain of 5.73%

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Nuveen Launches First of its Kind U.S. Aggregate ESG Bond Exchange-Traded Fund (ETF)

ESG Bond ETF Also Has No Mutual Fund Counterpart in the Sustainable Investing Sphere At the beginning of October, Nuveen Fund Advisors, LLC, a unit of Teachers Insurance and Annuity Association of America (TIAA), announced the launch of NuShares ESG U.S. Aggregate Bond ETF (NUBD), an index tracking exchange-traded fund that seeks to replicate the investment results of the Bloomberg Barclays MSCI US Aggregate ESG Select Index which, in turn, is derived from the Bloomberg Barclays US Aggregate Bond Index[1]. The fund, which is now listed on NYSE Arca, invests in a broad-based portfolio of US investment grade bonds that satisfy certain environmental, social and governance (ESG) criteria while at the same time excluding various bonds of companies that are involved in controversial business activities. This is the first broad-based investment grade fixed income ESG oriented ETF within a still tiny universe of fixed income ESG oriented ETFs and one for which there is no mutual fund equivalent in the market today.

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Sustainable Portfolios Performance Summary: September 2017

Positive Economic Data and Corporate Earnings Push S&P 500 to New Records Global equity markets discounted ongoing geopolitical risks and instead responded to positive economic data that signal continued health in the global economy and stronger global growth. This combination is expected to boost corporate profits that have already gained more than 10% in the first and second quarters of the year, although the pace of profit growth may decelerate. Against this backdrop, the S&P 500 Index was driven to new records as share prices of energy, industrial firms and banks revived during the month of September. After lagging behind for much of this year, small-capitalization stocks also picked up momentum. The S&P 500 added 2.06% during another low volatility month.

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ESG Factors on Their Own Not Likely to Lead to Market Outperformance

Introduction and Summary Conclusion An article published in the July 13, 2017 issue of Bloomberg’s Sustainable Finance entitled “These 10 Funds Have A Conscious…and Perform Spectacularly” promoted the idea that “investing for good can also be a good investment” based on the fact that “a number of mutual funds that take environmental, social and corporate governance (ESG) factors into account when making investment decisions have proven to be stellar performers.” The article went on to report that two of the top 10 funds beat the S&P 500 Index by wide margins during the one-year period ended June 30, 2017 as did two other funds. While the margins of outperformance were more limited, these two funds also exceeded the performance of the S&P 500 over the 3 and 5-year intervals. That was generally not the case for the other funds. While it is true that the two top performing funds, the Parnassus Endeavor Fund and the Parnassus Fund, both delivered outstanding aggregate results over the preceding 1, 3, 5 and even 10 year time intervals, the performance track record achieved by the group of 10 funds as a whole is less inspiring based on a more carefully constructed examination of the funds, their investment objectives and strategies as well as their performance relative to appropriately selected securities market indexes. In fact, the results show that, excepting for the latest 1-year period to June 30, the same 10 funds managed to outperform their benchmarks only between 34% and 41% of the time. While this record of achievement surpasses the results registered by domestic equity funds more generally (i.e. equity funds without ESG as a general attribute), it’s still below average. This conclusion is in line with the theme recently set out in an article published by Mark Hulbert in MarketWatch[1] that while there are many reasons to take environmental, social and governance factors into account when choosing investments, outperforming the market isn’t one of them. The basic reasoning is that any performance advantage attributable to ESG factors would be quickly arbitraged away. At best, investors attracted to sustainable investing strategies with a view toward achieving positive societal outcomes should expect their investments to achieve total rates of return in line with the market subject to a strategy that also relies on low costs and a combination of indexing along with skilled active management to take advantage of less efficient market segments. Bloomberg’s Sustainable Finance Article “Stellar Performers” According to Bloomberg’s research, the 10 equity oriented funds with assets of at least $100 million and a five-year history that takes environmental, social and corporate governance factors into account, including eight actively managed funds and two index funds, have proven to be “stellar performers” on the basis of their performance relative to the S&P 500 Index over the 1-year, 3-year and 5-year time intervals. Refer to Table 1 for a complete listing. The top two funds, in particular, beat the S&P 500 Index by wide margins. While the assertion regarding the Parnassus Endeavor Fund and Parnassus Fund is correct, the article suggests that all the funds have been stellar performers. Yet, a more meticulous analysis of these funds along with their investment objectives and policies shows that the results are more nuanced and, in fact, a different outcome emerges regarding the performance of individual funds and the group as a whole. Evaluating the Performance of the 10 ESG Oriented Funds through a More Appropriate Lens To further evaluate the performance results of this universe of 10 funds, the following methodology was used: The evaluation of fund performance was extended to include all share classes rather than focusing the analysis on retail funds only, either primary class or Class A shares. The ten funds and their corresponding share classes include a combined total of 31 funds/share classes. The analysis therefore accounts for the varying expense ratios levied by the funds and reflects the experience of a spectrum of investors served by the funds and ranging from retail to institutional investors. That said, the analysis sidesteps any applicable front-end sales charges where these are applicable. Indeed 5 funds/share classes or 16% of the funds apply a front-end sales charge ranging from a steep 4.5% to 5%. This is highlighted to the extent relevant to understanding the performance results of a given fund. Fund and share class performance results were evaluated based on each fund’s investment objective and corresponding securities market index, as designated for the fund by the fund management company. That is to say, a benchmark or index corresponding to each fund’s investment objective and strategy is used rather than defaulting to the S&P 500 Index. These indexes are disclosed in each fund’s prospectus and periodic reports. It turns out that the ten funds pursue six different strategies and are evaluated on the basis of six corresponding indexes. In addition to the S&P 500 Index used by 13 funds/share classes for relative performance evaluation purposes, these include the following additional indexes: Russell Mid Cap Index (2 funds/share classes), Russell 1000 Growth Index (4 funds/share classes), Russell 1000 Index (4 funds/share classes), Russell 2000 Index (4 funds/share classes) and the MSCI EAFE SMID Cap Index (4 funds/share classes). As in the Bloomberg study, performance results were evaluated across the 1, 3 and 5-year intervals through June 30, 2017. In addition, a 10 year time interval has been added. Observations/Conclusions The ten funds identified in the Bloomberg article consist of eight actively managed funds as well as two index funds all of which employ sustainable investing strategies that combine exclusionary policies, such as omitting companies with significant involvement in alcohol, tobacco, gambling, military or civilian firearms and nuclear power, as well as more active ESG integration practices. In some cases, sustainable strategies extend to impact investing practices as well as shareholder advocacy/engagement. Generally in line with current practices, the implementation of sustainable investing strategies with regard to methodologies, policies and practices varies from one fund company to the next. Regardless of strategy, the performance results achieved by the ten funds over the one year period to June 30, 2017 were above average relative to their corresponding indexes and, in some cases, outstanding, as 58% of funds and share classes outperformed their respective benchmarks. In particular, 10 of 13 large cap funds/share classes, or 77% of funds in this group, whose performance is judged against the S&P 500 Index, outperformed the benchmark. Within this group the Parnassus Endeavor Fund and Parnassus Fund generated outstanding 1-year results by exceeding the performance of the S&P 500 Index by between 8.4% and 13.4%, respectively. The near-term results achieved by these two funds and the larger group are likely related to their outsized exposure to the best performing S&P 500 health care and information technology sectors and lower weightings to the worst performing S&P 500 energy sector due to their avoidance of fossil fuel companies. The Parnassus funds with their concentrated portfolios have also distinguished themselves on the basis of longer-term results. At the same time, the longer term outcomes attained by the universe of the remaining eight funds are less impressive. Over the 3, 5 and 10 year periods to June 30, only 34%, 35% and 41% of the funds, respectively, outperformed their designated securities market indexes. In the case of domestic funds only, the corresponding levels of underperformance are 40%, 32% and 28%, respectively. Refer to Chart 2. While this applies to a small universe of funds, it should be noted that these levels of underperformance are still more favorable by a factor of about 2X when compared to the record achieved by domestic mutual funds more generally. According to research published by S&P Dow Jones Indices in the form of its SPIVA U.S. Scorecard through the end of 2016 for the 3 year, 5 year and ten year intervals, only 7%, 14.2% and 17% of domestic equity funds outperformed their corresponding non-ESG benchmarks[2]. The underperformance of the 8 funds/share classes is, in part, due to the fact that the expense ratios for this universe of funds are high and in some instances, excessively high. The average expense ratio for the retail oriented actively managed subset of funds, a total 18 funds/share classes, is 1.19%. This compares favorably to retail oriented non-sustainable funds with an average expense ratio of 1.25%. That said, only six of the funds/share classes, or 15%, fall within the lowest quartile or the lowest 25% of funds based on management and administrative fees charged (excluding up-front sales charges); and of these, 2 funds are only sold through financial intermediaries while two other fund are subject to $100,000 minimum investments that the management company characterizes as institutional funds. Nine funds/share classes fall within the second and third quartiles while 3 funds fall within the highest quartile with expense ratios in excess of 1.5%. Further, the two index fund offerings charge excessively high fees. These include the Calvert U.S. Large Cap Core Responsible Index that charges fees ranging from 0.54% combined with a 4.5% up front sales charge, and 1.29% for retail oriented purchases while the Green Century Equity Fund charges a fee of 1.25%. While representing an even smaller universe of funds/share classes, institutionally oriented funds are better positioned with 2 out of 4 funds/share classes or 50% falling into the first or lowest quartile relative to an equivalent universe of non-sustainable funds[3]. Admittedly, this analysis is based on a small universe of funds and even as they all take environmental, social and corporate governance factors into account when making investment decisions the individual sustainable policies and practices employed by each of the fund firms varies. Still, the results are more in line with the view that there are many reasons to take environmental, social and governance factors into account when choosing investments, but outperforming the market isn’t one of them. At best, investors attracted to sustainable investing strategies with the intention of achieving a societal benefit should expect their investments, in this case both actively managed funds and passive mutual funds, to achieve total rates of return in line with the market. To the extent that such funds experience intervals of outperformance, contributing factors are just as likely or more likely to be linked to the nature of the asset class as well as fundamental considerations such as market capitalization, growth versus value, geographic exposure, industry, sector and stock selection, in the case of equity funds. Bottom Line As is the case with investing more generally, the implementation of a sustainable portfolio strategy predicated on an investor’s goals and objectives involves the deployment of some combination of passively managed as well as actively managed investment funds to take advantage of market segment inefficiencies and the selection of skilled managers that can combine financial and sustainability characteristics with an established and consistent track record offering funds or other investment products, to the extent that these are used, that are effectively priced. In any case, investors have to be clear about their sustainability objectives to ensure that these are properly aligned with their portfolio profiles. [1] Source: This type of investing could save the world — just don’t expect outperformance, too, Mark Hulbert, published July 29, 2017, in MarketWatch. [2] Source: S&P Dow Jones Indices. SPIVA U.S. Scorecard, based on performance data through 2016. It should be noted that the relative performance of ESG funds is to June 30, 2017, while SPIVA data runs through 2016. [3] Expense ratio analysis based on a universe of retail oriented actively managed U.S. equity funds, including large-cap, mid-cap and small-cap funds, for a total of 5,846 funds/share classes, and 1,204 equivalent institutionally oriented funds with minimum initial investments over $100,000. Data source: STEELE Mutual Fund Expert, Morningstar data as of June 30, 2017.

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Sustainable Portfolios Performance Summary: August 2017

Market Wrap Up-August 2017 The S&P 500 eked out a narrow total return gain in August, rising 0.31% even as volatility picked up after a placid start to the year. The narrower based DJIA gained 0.65% while the Nasdaq Composite Index extended its record streak and ended up 1.43%. August proved to be an eventful month, as economic and financial developments combined with politics and geopolitical events to upend a stretch of much calmer trading over the preceding two months in particular. Near the end of the month, Hurricane Harvey led to widespread devastation across Texas that also impacted U.S. refining capacity in the region. Still, the performance of most major asset classes was broadly positive again in August. Bonds in the U.S. outperformed the S&P 500 Index for the first time this year, gaining 0.9% as investors sought shelter in gold and U.S. Treasuries which saw yields drop. Global bonds also performed well, registering an increase of 1.0% due to a broad-based contribution from almost all fixed income asset classes.

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Sustainable Portfolios Performance Summary: May 2017

Politics Dominated the Headlines in May, but S&P Continues Upward Trajectory; Bonds Also Rally Politics dominated the headlines in May and as news of investigations into U.S. president Donald Trump reached investors, the US stock market saw one of its largest downward moves in the year-to-date. But the two-day 2% drop was offset as stock prices continued their upward trajectory. The S&P 500 registered its third best monthly gain, adding 1.4%, the FTSE 100 rallied 5.0% and European stocks added 3.3% as Eurozone uncertainties due to the French election, which had commenced in April were, were resolved for now with the victory of Emmanuel Macron. Attention then turned to Italy where elevated political risk was attached to internal developments that made it seem increasingly likely that a general election would be held by the autumn.

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Sustainable Portfolios Performance Summary: March 2017

Equity Markets Push Higher, Delivering Strong 1Q Results; Fixed Income Pauses The US equity market pushed higher, but adding the smallest monthly gain so far this year of 0.12%, but closing the quarter with a strong 6.07% total return. Stock prices continued to benefit from strong corporate earnings and improved business and consumer confidence over the last year, undoubtedly reinforced by the US election that stimulated hopes for tax cuts, increased public spending as well as regulatory reforms. That said, the market may be taking a bit of a pause as investors’ enthusiasm over the likely implementation of the new administration’s policy initiatives is tamped down in light of the failure during the month to repeal and replace the affordable care act. Markets outside the US and Canada were up a stronger 2.75%, reflecting broad based earnings growth, economic confidence (except perhaps in the UK) and rejections of anti-euro politicians in recent European results and optimism about forthcoming elections in France.

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Mirova Global Green Bond Fund (MGGAX) - New ESG Product Profile

Assessment Low Conviction Synopsis Through its subsidiary, Mirova Asset Management, Natixis Global Asset Management has launched a green bond mutual fund that will be available to US investors. This represents the 3rd green bond fund on offer in the US. In an announcement dated February 28, 2017, Natixis stated that it has introduced the Mirova Global Green Bond Fund. Consisting of three share classes (Class A, Class N and Class Y), the fund will invest in green bonds issued by companies, banks, supranational entities, development banks, agencies, regions and governments around the world. Mirova is strongly positioned to offer such a fund. The firm, based in Paris, specializes in

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