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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.

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. 2022 [ihc-hide-content ihc_mb_type="block" ihc_mb_who="unreg" ihc_mb_template="4" ] contact us for this content. [/ihc-hide-content] Source:  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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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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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://sustainablest.wpengine.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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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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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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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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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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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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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.  [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] That said, each of the three model portfolios topped their benchmark over the trailing three-months while both the aggressive and moderate portfolios also closed calendar year 2019 with returns in excess of their benchmarks. The Conservative Sustainable Portfolio fell behind by 19 bps for the year. To varying degrees, the portfolios benefited from the performance of the Vanguard FTSE Social Index Fund Investor Shares. The fund beat the S&P 500 in December and ended the year 2.46% ahead, having recorded the best annual performance since 2009. The fund, whose monthly standard deviation is in line with the S&P 500, has also beaten the index over the last three, five and ten year intervals with average annual returns of 17.14%, 12.42% and 14.38%, respectively, versus the S&P 500 at 15.27%, 11.7% and 13.56%. At the same time, the heavily bond tilted Conservative Portfolio was hampered by the below benchmark results achieved by the TIAA-CREF Social Choice Bond Fund-Retail Shares in 2019. The fund fell behind the Bloomberg Barclays US Aggregate Index by 40 bps—a less common outcome for a fund that continues to outperform its benchmark by 15 bps and 19 bps over the trailing 3-year and 5-year intervals. Since their inception date of October 2012, the three model portfolios continue to outperform by wide margins ranging from 22.97% to 8.82%. Refer to Chart 1. Stock and bond markets worldwide posted excellent returns in 2019 bolstered by strong December gains: S&P 500 added 3.0% while the Dow Jones Industrial Average and Nasdaq Composite recorded 1.9% and 3.6% increases Stock and bond markets worldwide posted excellent returns in 2019. The major US stock indices ended the last day of the year on a positive note, bolstered by encouraging news that the US China Phase 1 trade agreement will be signed on January 15 and signaling 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 lingering geopolitical as well as domestic political uncertainties linked to the President’s impeachment proceedings. The S&P 500 posted a total return gain of 3.02%, while the Dow Jones Industrial Average and Nasdaq Composite recorded 1.9% and 3.6% increases. Outside the US, developed and emerging market equities posted even stronger returns, with the MSCI ACWI ex USA (Net) gaining 4.3% and emerging markets climbing 7.5%. Across other asset classes, investment-grade bonds continued to decelerate and dropped -0.1% 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%.[/ihc-hide-content]

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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 [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] Franklin Gold and Precious Metals Fund R6 aside, the roster of top 10 US equity and sector equity funds was dominated mutual funds and ETFs investing in alternative energy companies, such as solar, wind, electric vehicles, mobile devices and renewable energy more generally. The top ten funds delivered an average 11.14% return in December, beating the average for all US equity and sector equity funds, up 2.70% and the S&P 500, up 3.02%. The top performing fund, Firsthand Alternative Energy, posted a gain of 15.76%. This smallish $6.2 million thematic fund invests its assets in alternative energy and alternative energy technology companies, both U.S. and international. The Franklin Gold and Precious Metals Fund R6, that integrates ESG factors, benefited from the uptick in gold prices that rose 3.6% during the last month of the year. Very few funds within this segment consisting of 1,223 funds/share classes recorded zero to negative returns in December, but nine funds did. These funds reside within the bottom 10 performing US equity and sector equity funds that delivered an average return of -1.3%. That said, their returns range from the lowest, posted by the Amplify Seymour Cannabis ETF, that dropped -6.59% in December to a high generated by the American Century NT Global Real Estate Fund-Inv shares of 0.15%. The former fund integrates ESG scoring in its investment analysis while the latter employs and exclusionary approach that sidesteps tobacco companies from its portfolio. International Equity Funds: Average 4.11% in December Even during a month when the MSCI ACWI, ex USA (Net) Index outperformed the S&P 500 in December by 1.4%, top performing international equity funds performed well but still posted a lower average return of 8.6% relative to the top performing US equity funds. In addition to several funds investing in emerging markets, environment and alternative energy, top funds include two China focused funds. The KraneShares MSCI China Environment ETF led the top funds category with its 12.11% return. This $1.9 thematic index ETF seeks to replicate the performance of the MSCI China IMI Environment 25/50 Index by investing in Chinese companies that derive at least a majority of their revenues from environmentally beneficial products and services, as determined by MSCI Inc. A relative newcomer, the $15.1 million Alpha Architect Freedom 100 Emerging Markets ETF, launched in May 2019, posted a 7.76% return. The fund is designed to track the performance of a portfolio of approximately 100 equity securities listed in emerging market countries qualified by data covering 79 personal and economic freedom factors, including the rights to life (such as absence of terrorism, human trafficking, torture, and political detentions), liberty (such as rule of law, due process, freedom of the press, freedom of religion, freedom of assembly), and property (such as marginal tax rates, access to international trade, business regulations, established monetary and fiscal institutions, and size of government). At the other end of the range, the ten worst performing international funds generated an average return of 0.47%. This cohort was led by the Schroder Emerging Markets Small Cap Inv. that was down -1.49%. The fund was scheduled for liquidation as of December 31, 2019. But also in the mix were funds investing in frontier markets, Japanese equities and India—the month’s emerging markets laggard that posted a return of just 1.5% in December. Fixed Income Funds: Average 0.77% in December As the performance of fixed income fund continued to decelerate in December, emerging market debt funds denominated in local currency bucked the trend. The top 10 fixed income funds gained an average 3.92% and were led by MFS Emerging Markets Debt Local Currency Fund I that added 4.69% in December. Effective in October, the fund’s prospectus was amended to note that it “may also consider environmental, social, and governance (ESG) factors in its fundamental investment analysis.” MFS Emerging Markets was one of six leading funds focused on emerging or frontier markets. The bottom 10 performing bond funds recorded an average return of -0.72%. These included two green bond funds that gave up -1.14% and -0.56%, respectively. For the year, however, the thematic iShares Global Green Bond Fund ETF was up 8.67% while Mirova Global Green Bond Fund, that also integrates ESG in making green bond investment decisions, was up 9.38%. Long-dated fixed income funds in the 20+ years range lagged in December, posting a return of -2.9%. Sustainable Investing Strategies: Dominated by Funds that Integrate ESG The roster of 60 top and bottom performing funds in the month of December was dominated by 45 funds/share classes integrating ESG factors, either exclusively or in combination with other approaches, most commonly engagement with investee firms. 16 funds pursue thematic investing approaches. Eight firms equivocate regarding their commitment to ESG integration. These include firms that, by prospectus, note that they may integrate ESG rather that firmly committing to doing so. These include funds offered by Eaton Vance, MFS, MacKay Shields and PFM. In the case of the PFM Multi-Manager Fixed-Income Institutional that’s managed by 5 sub-advisers, only some but not all managers integrate ESG. There were also variations with regard to ESG integration within the three US equity, international and fixed income segments, most notably across the top performing US Equity and Sector funds that were dominated by thematic funds focused on the alternative energy sector. December Performance Scorecards                                                                                                                                                                                 [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The Aggressive Sustainable Portfolio (95% stocks/5% bonds) was boosted by its 70% exposure to the Vanguard FTSE Social Index Investor Shares. The Portfolio gained 2.70% versus 2.42% recorded by the index, for a 28 basis points (bps) differential. Counterbalanced by its exposure to the lagging Domini Impact International Equity Investor Shares, this was only the fourth non-consecutive month so far this year that the portfolio achieved a gain. As a consequence, the Aggressive Portfolio lags behind its customized conventional index over the quarter, year-to-date period and trailing 12-months. Still, the Aggressive Sustainable Portfolio, largely weighted by domestic equity and foreign securities, continues to outpace its index since inception by 20.25%. Refer to Table 1 and Chart 1. The Moderate Sustainable Portfolio (60% stocks/40% bonds) registered a gain of 1.82% versus 1.67% for the index, besting the index by 15 bps. Like its riskier Aggressive Sustainable Portfolio counterpart, it trails its conventional index for the quarter, year-to-date and 12-month intervals through the end of October, but the Portfolio continues to outperform by 14.48% since inception. Refer to Table 1 and Chart 1. The Conservative Sustainable Portfolio (20% stocks/80% bonds) managed to match its conventional index as both returned 0.77% in October. While the TIAA-CREF Social Choice Bond Fund Retail Shares and Domini Impact International Equity Fund Investor Shares both registered positive results for the month, the underlying funds fell behind their corresponding indices. In line with the other two model portfolios, the relative performance of the Conservative Sustainable Portfolio lagged behind its conventional index over the trailing three months, year-to-date and 12-month intervals. The Conservative Sustainable Portfolio, however, also continues to outperform since inception by a more modest 8.67%. Refer to Table 1 and Chart 1. Market recovers in second half of October to post strong 2.17% return while foreign markets performed even better The model sustainable portfolios exceeded or matched their conventional benchmarks during the course of a month that produced capital markets returns ranging from highs of 8.05% posted by European emerging markets to 7.73% recorded by NASDAQ biotech stocks and 4.97% for Japanese stocks to lows between -2.48% and -1.27% achieved by utilities and energy stocks, the broad US stock market delivered a positive 2.17% total return in October, the fifth best month so far this year. But the path to achieving this gain was not linear. The S&P 500 was in the red after ten trading days through October 14 when, at close, it recorded a month-to-date decline of -0.356% as it labored through geopolitical and economic uncertainties at home and abroad ahead of earnings season. Thereafter, investor pessimism was overcome in response to an announcement that the US and China had reached a “phase one” agreement pursuant to which China would buy more US farm goods while the US reciprocates by holding off on the imposition of new tariffs on October 15. Still, trade negotiations can turn on a dime and unless an agreement is executives, China-US trade will continue to cast a shadow over the market. Further, worries about the slowing US economy retreated somewhat after companies began to report better than expected third quarter results. Stocks moved decisively higher as earnings season shifted into high gear. With 71% of S&P 500 companies reporting by November 1st, 76% reported earnings above consensus estimates. That said, it should be noted that expectations for third-quarter earnings were low as analysts had revised their estimates lower over the summer due to economic concerns. For more details regarding the performance of markets and sustainable funds in October, refer to Sustainable Indices Matched or Trailed Returns for the Month of October 2019. [/ihc-hide-content]

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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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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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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] In addition to precious metals, leading funds included alternative energy and global real estate funds whereas at the other end of the spectrum, lagging funds, in addition to Amplify Seymour Cannabis ETF, include a varied mix of small cap and mid-cap funds to thematic funds concentrating in health and life sciences and natural resources. Fixed Income Funds Bonds and bond funds had a strong month as interest rates declined across the entire maturity curve (excepting 1-month Treasury bills), with 10-year Treasury yields giving up 56 basis points (bps) to end the month at 1.50% and 30-year Treasury yields giving up 57 bps to end August at 1.96%. Sustainable bond funds produced an average return of 0.82% and an average year-to-date gain of 7.27%. The SUSTAIN Bond Fund Index posted a gain of 2.58%. Longer dated bond funds recorded the best results. The Schroders Long Duration Investment-Grade Bond Fund Inv. and Calvert Long-Term Income I gained 7.98% and 5.65%, respectively. Global bond funds and emerging market bond funds ended August with results at the other end of the range. The worst performing funds were four Franklin Templeton emerging market and global funds with returns ranging from -6.69% to -4.31%. Sustainable Investing Strategies The leading and lagging sustainable funds universe in August was again dominated by funds that have adopted an ESG integration approach, either exclusively or in combination with other sustainable strategies. This segment consists of 32 funds/share classes and ETFs our of 40 funds/share classes in total, including 22 that rely on ESG integration exclusively while the other 10 funds/share classes and ETFs combine ESG integration with one or more other sustainable strategies, such as negative screening (exclusions). That said, the leading and lagging performers varied based in their sustainability profiles. Leading equity and other related funds were split four each between funds adopting ESG integration exclusively or in combination with other strategies and funds that fall into the Impact/Thematic category. Om the other hand, lagging sustainable fixed income funds consist entirely of funds that have adopted ESG integration approaches, including two funds that also employ negative screening (exclusion) and bondholder engagement. August Performance Scorecards Notes of Explanation covering equity and other equity-related 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 1,692 funds/share classes, ETFs, ETNs with performance for the full month of August 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 569 funds/share classes, ETFs, ETNs with performance for the full month of August 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.[/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] ETFS: 21 funds and $3.1 billion in net assets under management The international funds segment has expanded significantly over the last two years in percentage terms, growing from 14 funds at June 2017 to 21 funds at June 2019, for a net increase of 7 funds, or 50%, however, assets under management have expanded modestly from $1.06 billion to about $3.1 billion, for an increase of about $2.0 billion or 191%. The ETF international segment is dominated by three funds offered by BlackRock/iShares and Vanguard with its recently launched Vanguard ESG International Stock ETF. These three funds account for $1.7 billion and 54% of the segment’s assets. Nine ETFs manage less than $35 million in net assets and, in fact, one of these smaller ETFs, the Hartford Global Impact NextShares which hovered around $5 million, was slated for liquidation on or about June 7, 2019. The ETFs offered at the end of June fall into four geographic categories, dominated by three that include the largest, comprised of foreign funds that account for $1.4 billion in net assets and make up 44.3% of the total. Diversified emerging markets add $865 million and represents 28% of the segment total while world funds constitute $853 million and 27.6% of net assets. At the same time, the sustainable investing ETF options are also concentrated and most frequently rely on indexes and a ratings methodology provided by MSCI. In the table below, sustainable investing has been classified into five commonly acknowledged approaches, including a values-based strategy, negative screening (or exclusionary) strategy, impact/thematic investing, ESG integration as well as shareholder/bondholder engagement and proxy voting. All but five of the ETFs rely on some form of negative screening or exclusionary approach while 12 funds employ an ESG integration approach either exclusively or in combination with exclusions. Eight ETFs employ an impact and/or thematic approach either exclusively or in combination with one or more sustainable investing practices. Refer to Table 1.   Mutual Funds: 154 funds, 573 share classes and $96.7 billion in net assets under management It is via mutual funds that the international investment company segment expanded most dramatically, largely due to fund re-brandings that gained momentum in the last two years. This came in two waves starting in the fourth quarter of 2017 when sustainable international mutual fund assets ticked up by 90.2% as three firms in particular, JPMorgan, Morgan Stanley and Hartford Funds, repurposed existing funds by adopting ESG strategies that combine with fundamental investment decisions to inform their conclusions. In the process of doing so, they made their way into the top 10 segment. Assets jumped again, this time by 66.1% in the first quarter of 2019, when a significant number of existing funds were again rebranded. Additional funds were added by the three mentioned previously, but also funds managed by firms like Franklin Templeton, Legg Mason, and Neuberger Berman were added to the mix. As of June 2019, there were a total of 154 mutual funds offering 573 share classes with $96.7 billion in net assets, or 96.7% of the segment’s total. The segment added a whopping $82.2 billion in assets since June 2017, and experienced an increase of 567.2% as the number of funds/share classes ticked up from 151 to 573. Fund re-brandings based almost entirely on the adoption of prospectus language changes that reflect the adoption of ESG strategies is largely responsible for the gains. Along the way, the category of funds shifted, as did the profile of the funds and fund management firms. Funds Categories: Foreign funds is the largest category of international mutual funds, representing $43.1 billion and 44.6% of net assets Foreign funds is the largest category of international mutual funds, representing $43.1 billion and 44.6% of net assets, up by about 525% from $6.9 billion in assets, or 47.25%, two years earlier. Diversified emerging market funds now represent the second largest category with $30.1 billion or 31.1% of net assets. This compares to around $2.5 billion as of mid-year 2017 when this category accounted for only about 17% of the international funds segment. While world funds gained 410.2% in net assets, this category now ranks third with $19.8 billion in net assets at the end of June 2019. As the number of firms offering international mutual funds increased from 35 to 55 firms at the end of June, the profile of the leading firms and their rank ordering shifted. The top 20 firms offering international mutual funds manage a combined total of $90.7 billion in net assets that represent about 94% of the total segment. Within this cohort of fund firms, 12 new firms have been introduced into the top 20 rankings in the last two years. Put another way, only eight firms that ranked in the top 20 two years ago remain in the top ranking and also their ranking order shifted. Of the top 10 ranked firms two years ago, only three retain their position even as their rankings have shifted. More dramatically even, the top five firms which didn’t offer sustainable international funds two years ago now dominate with their assets under management, accounting for 63.6% of the assets that have largely been repurposed or re-branded. All five fund firms have adopted ESG integration strategies. Across all international fund categories, institutional investors now account for a minimum of 71.7% of assets under management, up from 61% two years ago. ESG profile of largest international mutual funds firms and funds: ESG integration dominates Within the top 20 ranked sustainable international fund firms, all but two fund firms formally integrate ESG factors into their investment strategy. The exceptions are the GuideStone family of funds that adheres to a faith-based approach implemented via negative screening (exclusions) and American Century Investments that imposes a limitation on tobacco stocks. Sole reliance on ESG integration is explicitly mandated by 11 fund firms that manage a combined $60.4 billion in net assets and represent over two-thirds of the assets managed by the top 20 firms and 62.4% of the segment’s total. The other seven firms either combine ESG integration with other sustainable approaches or offer thematic funds. These include two preeminent socially responsible fund firms, Calvert and Domini, that combine values-based investing and negative screening (exclusions), impact and proxy voting/shareholder engagement on top of ESG integration. Refer to Table 2 and the Funds Directory tab. The largest 20 sustainable international mutual funds, all with over $1.0 billion and accounting for 54.7% of the segment’s total net assets, are dominated by funds that integrate ESG factors in some form into their investment management approach. Of these, three funds combine ESG with related sustainability practices, such as shareholder engagement. Two funds limit their sustainable strategy to negative screening/exclusions. Refer to Table 3.   Sustainable international funds expense ratios: Average ETF expense ratio is 0.39% versus 1.26% for mutual funds Expense ratios applicable to sustainable international funds vary significantly between actively managed funds and index funds, both in the form of ETFs and mutual funds. Average ETF expenses are considerably lower, averaging 0.39% versus 1.26% for mutual funds . They are also considerably lower when evaluated on an asset weighted basis at an even lower 0.25% versus actively managed mutual funds at 0.90%. ETF expense ratios are also considerably lower relative to index mutual funds. The average expense ratio for this investment fund category is 0.76%, with a low value of 0.2% and a high value of 1.99%. On an asset weighted basis, the expense ratio applicable to index mutual funds is still a higher 0.44%. ETF expenses range from a low of 0.2% to a high of 0.78% while mutual fund expense ratios range from a low of 0.01% to a high of 3.04%. Sustainable international mutual funds investment performance: SUSTAIN Foreign Fund Index up 5.92% in June 2019 The substantial growth in both the number of funds and assets under management sourced to similarly managed sustainable foreign mutual funds has made it possible to create a sustainable mutual fund index that’s tracks the performance of funds within one or more segments of this market segment. Launched with an effective date as of June 30, 2019, the Sustainable (SUSTAIN) Foreign Equity Fund Index, like the SUSTAIN Large Cap Equity Fund Index and the SUSTAIN Bond Fund Index, tracks the performance of the ten largest funds/share classes that make up the segment while also employing a sustainable investing strategy that extends beyond strictly applying exclusionary criteria. In total, these funds manage $14.6 billion in net assets and represent 32.8% of the segment’s assets under management at the end of June. Refer to the index description appended at the end of the article. In its inaugural month of June, the index posted a gain of 5.92% versus 6.02% recorded by the MSCI ACWI, ex US, or a differential of 10 basis points. Five of the ten funds that make up the index added to performance with total returns ranging from 6.11% to a high of 6.5% generated by the $247.8 million Boston Common ESG Impact International. At the other end of the range, five funds detracted from June’s performance with results ranging from 4.73% to 5.96%. Refer June 2019 SUSTAIN Index performance article. Sustainable (SUSTAIN) Foreign Equity Fund Index Explained The index, which was initiated as of June 30, 2019 with data starting in June 2019, tracks the total return performance of the ten largest actively managed foreign equity mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons. While methodologies vary, to qualify for inclusion in the index, funds in excess of $50 million in net assets must actively apply environmental, social and governance (ESG) 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. Eligible foreign mutual funds are selected from the universe of foreign funds that align themselves to the performance of the MSCI All Country World, ex US Index. The index represents either fund’s primary prospectus benchmark or has been determined to track the benchmark based on an analysis of the fund’s style composition (MPT). The MSCI ACWI ex USA Index captures large and mid-cap companies across 22 of 23 developed markets countries (excluding the US) and 26 emerging markets countries. With 2,206 constituents as of June 2019, the index covers approximately 85% of the global equity opportunity set outside the US. Only the largest single fund or share class managed by an investment management firm is included in the index. Also, a fund with multiple share classes is only included in the index once, based on the largest share class in terms of net assets. The index is equally weighted, it is calculated monthly and rebalanced once a year as of December 31. The combined assets associated with the ten funds that comprise the index as of June 30, 2019 stood at $14.6 billion and represent about 32.8% of the $44.5 billion in assets sourced to large cap growth, value and hybrid funds that invest in foreign securities, excluding the US. [/ihc-hide-content]

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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 percent.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 assetsIn 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 FundAlong 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 closingsIn 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 EquityIt 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.percent

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ]Even as the bank moved to address its deficiencies and repair its damaged reputation, sustainable large cap equity mutual funds sold off their Wells Fargo common stock investments.  In fact, within a universe of the ten largest similarly managed large cap sustainable equity funds, the ten funds that comprise the Sustainable (SUSTAIN) Large Cap Funds Index, nine of the ten funds have no current exposure to Wells Fargo stock even as the company represents a 0.9% position in the S&P 500 Index[2].  This contrasts with the portfolio composition of the ten largest actively managed conventional large cap mutual funds. According to our research, nine of the ten largest large cap funds continue to invest in Wells Fargo, with stock positions ranging from 0.31% to 3.64% of portfolio net assets.  Possible valuation considerations aside, this variation offers a window for investors into the type of outcomes that can be expected when funds pursue a sustainable mandate, in this instance, largely in the form of an environmental, social and governance (ESG) integration approach or strategy that can impact portfolio construction and stock selection. Although difficult to measure, in the short-to-long run this can also have an impact on portfolio performance results. Wells Fargo faces numerous regulatory issues, exposing the bank to governance, operational and social risks and considerations Wells Fargo has struggled in recent years to overcome numerous regulatory issues, including, revelations that bank employees, starting as early as 2011, were responsible for creating more than 3.5 million unauthorized deposit accounts for existing customers and transferring funds to those accounts from their owners’ other accounts, all without the knowledge of their account holder customers, or their consent, in an effort to generate illicit fees.  In addition to paying full restitution to all victims, this led to the imposition by the Consumer Financial Protection Bureau (CFPB) of a $100 million fine in September 2016 and thereafter to the ouster of the bank’s CEO John Stumpf.  But that was not all as other high profile violations came to light, involving overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on mortgage loans and charging customers for auto insurance policies that they did not need after taking out car loans with Wells Fargo.  While the bank has taken many actions to remediate its deficiencies and restore customer confidence and its reputation, regulators are still not satisfied with Wells Fargo’s progress.  As recently as March 11th, the Office of the Comptroller of the Currency issued a written statement noting that the bank regulator continues to be disappointed with Wells Fargo’s performance under its consent orders and the bank’s inability to execute effective corporate governance and a successful risk management program.  The written statement noted that national banks are expected “to treat their customers fairly, operate in a safe and sound manner, and follow the rules of law.”  In addition, as noted earlier, the bank was involved in financing the Dakota Access Pipeline (DAPL) project. This controversial pipeline project caused an uproar across the nation, leading to closely watched protests and negative sentiment towards companies involved in its construction. A consortium of seventeen banks, including Wells Fargo, lent money to finance the DAPL. ESG integration strategies are expanding rapidly ESG integration is a rapidly expanding investment strategy that represents one approach within a broader sustainable investing landscape focused on the idea that investors can achieve a positive societal outcome or impact with their investments. Optimally, this should be accomplished without sacrificing long-term financial returns. Sustainable investing is an umbrella term that encapsulates ethical investing, socially responsible investing and responsible investing. It also seems that the term sustainable investing may be morphing into ESG investing.  While the definition has been changing over time, today sustainable investing refers to a range of five overarching investment approaches or strategies. Most practitioners agree that these encompass the following strategies: Values-based investing Negative screening or exclusions Impact and thematic investing ESG integration Shareholder/bond engagement and proxy voting ESG integration, in particular, refers to the systematic and explicit inclusion of ESG risks and opportunities in investment analysis where such risks are considered to be relevant and material. Wells Fargo’s ESG risk profile and ratings take a tumble starting in 2016 Another consequence of the developments affecting Wells Fargo as described above is that the firm’s ESG ratings tumbled.  These are company level assessments of ESG qualities or characteristics that, according to one of the leading ESG rating or scoring firms, Sustainalytics, placed Wells Fargo above the sector average through early 2016[3].  Then in early 2016, following almost two years of revelations regarding the new accounts schemes and a settlement with the regulators, Wells Fargo’s overall ESG ratings, including its governance and social scores, began to drop and these have not fully recovered since that time. Calculated on a scale from 0 to 100, Wells Fargo’s ESG rating declined from 61.83, versus a category average of 58.35, to a low of 52.71 versus a category average of 59.27.  Most recently, the company’s ESG rating stood at 57.29 versus a category average of 60.94.  The firm’s S & G scores dropped too, while the overall ESG rating was bolstered by the firm’s above sector Environmental score that continues to top the category average at 82.7 versus 57.5.  While these are by no means the only inputs, it should be noted that ESG ratings or ESG scores are often used by asset owners and investment managers to inform their evaluation and analysis of stock valuations. Refer to Chart 1. In the course of these developments, the largest similarly managed sustainable large-cap equity mutual funds that hadn’t already sold their Wells Fargo stock holdings did so by the end of the calendar year 2017.  One exception was Parnassus Core Equity Fund, a $16.4 billion fund that “invests in U.S. large-cap companies with long-term competitive advantages and relevancy, quality management teams and positive performance on ESG criteria.” The firm held on to Wells Fargo shares until 2018 while engaging with the firm across a number of issues, including its involvement in and financing of the Dakota Access Pipeline (DAPL) project. The steps that the bank had taken to address its management and operational deficiencies, employee and customer relations and its involvement in DAPL gave Parnassus management the confidence to hold on to the stock.  But that finally gave way in 2018. In the end, only one of the ten largest similarly managed sustainable large cap funds based on assets as of December 31, 2018, continues to maintain a position in Wells Fargo.  This is the JP Morgan US Equity Fund, an existing $12.4 billion fund that rebranded its mandate effective November 1, 2018 when the fund amended its prospectus to disclose that the fund’s adviser seeks to assess the impact of environmental, social and governance factors on the cash flows of many companies in which it may invest. By way of comparison and contrast, nine of the ten largest conventional large cap equity mutual funds continue to hold their investments in Wells Fargo stock. This is illustrated in Chart 2 which displays the percentage of portfolio assets invested in Wells Fargo & Company stock on the part of the ten largest actively managed large cap equity growth mutual funds.  Based on data of the latest annual and semi-annual reporting dates, nine of the ten funds continue to invest in Wells Fargo, with stock positions ranging from 0.31% to 3.64% of net assets. Of these, five funds actually have investments in Wells Fargo that exceed the percentage of the firm tracked by the S&P 500 Index. Otherwise, the only exception is the T Rowe Price Blue Chip Growth Fund, a $59.3 billion growth oriented mutual fund[4] that has not had a position in Wells Fargo. [1]For purposes of this article, ratings and scores are used interchangeably. [2] The ten largest funds exclude multiple funds managed by the same manager.  The Sustainable (SUSTAIN) Large Cap Equity Fund Index, which was 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 that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons.  While methodologies vary, to qualify for inclusion in the index, funds in excess of $50 million in net assets must actively apply environmental, social and governance (ESG) 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. Effective December 31, 2018, only the largest single fund or share class managed by an investment management firm will be included in the index.  Also, a fund with multiple share classes is only included in the index once, based on the largest share class in terms of net assets.  The index is equally weighted, it is calculated monthly and rebalanced once a year as of December 31. The Sustainable (SUSTAIN) Large Cap Equity Fund Index was reconstituted as of December 31, 2018 to reflect changes that occurred during 2018 in the profile of the sustainable US equity universe of mutual funds due to the expansion in the number of funds offered in this market segment by mainstream investment management firms and the expansion in the universe of available like funds from which to select the ten index constituents.  As a result, the index was reconstituted to reflect the substitution of three large funds.  These include the JPMorgan U.S. Equity Fund R6, Pioneer A and Putnam Sustainable Leaders A.  These three funds replace Dreyfus Sustainable US Equity Fund Z, Parnassus Fund and Parnassus Endeavor Fund Investor Shares. The combined assets associated with the ten funds stood at $45.8 billion and represent about 16.1% of the entire sustainable US equity sector that is comprised of 446 funds/share classes, including actively managed funds and index funds, with $283.8 billion in assets under management. [3] According to Sustainalytics, its ESG ratings measure how well companies proactively manage the environmental, social and governance issues that are the most material to their business and provide an assessment of companies’ ability to mitigate ESG risks. The ESG rating is a quantitative score on a scale of 1-100, based on a balanced scorecard system. [4] TNA as of February 28, 2019 [/ihc-hide-content]

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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%. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] February Results: S&P 500 up 3.21% while the Sustainable Large Cap Equity Funds Index gains 3.77% After posting a gain of 8.01% in January, the best monthly results since October 2015, the S&P 500 Index recorded another consecutive increase in February. The index added 3.21% and extended its year-to-date gain to 11%, thus erasing and exceeding December’s 9.2% decline. The NASDAQ Composite Index and the Dow Jones Industrial Average delivered even better results, posting gains of 3.60% and 4.03%, respectively. Fitting in within this range, sustainable large cap funds, as measured by the SUSTAIN Equity Fund Index, gained 3.77%. Growth stocks outperformed value stocks while small company stocks excelled, adding 5.2% for the month. Except for Latin America, most stock markets ended the month in the black, with total return results falling in the 2%-3% range while China registered a gain of 3.45%. Investment-grade intermediate bonds, as measured by the Bloomberg Barclays US Aggregate Index, gave up -0.06% as yields on 10-Year Treasuries rose 10 basis points (bps) from January 31st to end the month at 2.73%. Still, investor sentiment remains cautious with some positing that the 2019 rally is unjustified. The best two-month start to the year since 1987 was fueled by a more patient Federal Reserve Bank, better than expected corporate earnings and a lowering of US-China trade tensions that was confirmed before month-end when it was announced that the US was abandoning, for now, its threat to raise tariffs on $200 billion of Chinese goods that would have gone into effect on March 1. ESG 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 The gains recorded in February, on top of the strong increases in January, erased in their entirety the declines posted in December of last year. Positive total return performance results ranging from 0.13% to 3.29% that were delivered by each of the three underlying mutual funds that comprise the model portfolios contributed to this outcome. At the same time, excess index returns generated by the TIAA CREF Social Choice Bond Retail Shares and Vanguard FTSE Social Index Investor Shares were offset by the total return posted by the Domini Impact International Equity Investor Shares. The fund trailed its conventional benchmark by 1.1%. As a result, the Aggressive Sustainable Portfolio (95% stocks/5% bonds) and Moderate Sustainable Portfolio (60% stocks/40% bonds) lagged their corresponding indexes by 21 basis points (bps) and six bps for the month. On the other hand, the Conservative Sustainable Portfolio (20% stocks/80% bonds) with a limited exposure to foreign stocks, beat its corresponding conventional benchmark by 11 basis points. Refer to Table 1. The reverse is true for performance results delivered since the start of the year. The Aggressive and Moderate Sustainable portfolios outperformed their conventional indexes by 0.3% and 0.6%, respectively, while the Conservative Sustainable Portfolio fell behind by a mere one basis point. While lagging their corresponding conventional benchmarks for the trailing twelve-month interval, each of the model portfolios continues to outpace their benchmarks since their inception as of October 2012 by a significant range, from almost 7% to 19%. Refer to Chart 1. The universe of sustainable mutual funds and ETFs across all fund types gain an average 2.52% Sustainable funds across all fund types, a total of 1,440 mutual funds, ETFs and ETNs with performance results for the entire month of February, posted an average total return gain of 2.52%. Results ranged from a high of 10.46% recorded by the Zevenbergen Genea Institutional Fund, to a low of -2.73% generated by the iPath Global Carbon ETN. The Zevenbergen Genea Fund invests in innovative transformational businesses at an emerging stage, oftentimes near the company’s initial public offering, that are also evaluated on the basis of ESG risks. iPath is a highly volatile thematic exchange-traded note (ETN) that provides exposure to the global price of carbon by referencing the price of carbon emissions credits from the world’s major emissions related mechanisms. Equity and all equity related funds added an average of 3.02% in February and 11.47% on a year-to-date basis while fixed income funds, including taxable and municipal investment vehicles. gained an average of 0.54% and 2.37% since the start of the year. Refer to Table 2. 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 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 2. 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 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), Mass Mutual and Front Street Capital Management, Inc. (Clark Fork Trust) that on a combined basis added about $3.3 billion. 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, which commenced operations in 2014, announced that it was intending to close as of March 20, 2019. 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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.   [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] Model portfolios were buffeted by the turbulent markets in December and their performance was defined by levels of exposure to equities versus bonds. Aggressive, Moderate and Conservative Sustainable Portfolios registered negative results in December ranging from a low of -1.48% to -7.90%, based on the portfolio’s risk profile.  The aggressive and moderate portfolios posted their steepest declines so far this year, giving up -7.90% and -5.64%, respectively, while the conservative portfolio beat the -2.73% decline recorded in October with a still negative -1.48% decline. Sustainable funds closed December at an all-time high with $390.4 billion. 2018:  A challenging and turbulent year In what turned out to be a very challenging and turbulent year, the S&P 500 Index posted its worst performance since 2008.  The broad-based index ended 2018 down -4.38% versus -37% in 2008 and compared to a gain of 21.83% in the prior year 2017.  In the month of December, the S&P 500 gave up -9.03% and this pushed the fourth quarter results down to -13.52%.  European, Asian and China’s markets performed even worse. The MSCI Europe and Asia indexes were down -14.86% and -18.88%, respectively.  On the other hand, investment-grade bonds, which were in negative territory all year long, gained 1.84% in December and this lifted the Bloomberg Barclays US Aggregate Index up to 1.64% for the quarter and to an increase of 0.01% for the full year. 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. Model portfolios buffeted by turbulent markets in December and their performance was defined by levels of exposure to equities versus bonds Reversing course this month, the Aggressive Sustainable Portfolio (95% stocks/5% bonds), Moderate Sustainable Portfolio (60% stocks/40% bonds) and the Conservative Sustainable Portfolio (20%/80%) registered negative results in December ranging from a low of -1.48% to -7.90%, based on the portfolio’s risk profile.  The aggressive and moderate portfolios posted their steepest declines so far this year, giving up -7.90% and -5.64%, respectively, while the conservative portfolio beat the -2.73% decline recorded in October with a still negative -1.48% decline.  The conservative portfolio benefited from the positive performance posted by investment-grade intermediate bonds during a month when this market segment diverged from the results posted by equities in the US and overseas.  At the same time, it was one of two portfolios to fall behind their corresponding conventional index as both the TIAA-CREF Social Choice Bond-Retail Shares and Domini Impact International Equity-Investor Shares underperformed their corresponding conventional indexes.  Refer to Table 1. Performance Summary Table: Total Returns to December 31, 2018 While each of the three model portfolios ended 2018 on a negative note, they still all managed to outperform their conventional benchmarks by small margins ranging from 0.02% to 0.16%.  The model portfolios also continue to outperform their corresponding indexes since their inception in October 2012.  Refer to Chart 1. The performance of the underlying funds in December ranged from a positive 1.74% registered by TIAA-CREF Social Choice Bond-Retail Shares to -5.19% recorded by the Domini Impact International Equity-Investor Shares, to the –8.84% return for the Vanguard FTSE Social Index-Investor Shares. Only Vanguard managed to outperform its corresponding conventional index, the S&P 500, in December.  The same fund along with TIAA-CREF Social Choice Bond-Retail Shares also exceeded the performance of their conventional benchmarks over the 1-year period, with the Vanguard FTSE Social Index-Investor Shares eclipsing the performance of the S&P 500 by a full 1.0% with only a slightly higher level of monthly volatility. Performance Summary Chart: Cumulative Total Returns October 2012-December 31, 2018 The model portfolios will be rebalanced as of December 31, 2018 to bring these back into alignment with their corresponding risk-based allocation ratios and also to take advantage of new investment options launched to year that can potentially improve returns and reduce risks. Sustainable mutual funds and ETFs posted an average return of -7.80% and -5.69% for the year, respectively Across the range of funds in operation throughout the entire month, a total of 1,271 funds, including mutual funds, exchange traded funds (ETFs) and exchange traded notes (ETNs), extending from money market funds to fixed income funds and to domestic and international funds, designated sustainable funds registered an average return of -5.84% in December. A total of 187 funds or 15% of funds recording results ≥0.00%.  These outcomes ranged from a high of 21.16% generated by the small iPath Carbon ETN, which was followed by several long-dated investment-grade intermediate bond funds, to a low of -13.85% recorded by Parnassus Endeavor Investor Shares.  See Table 2. Sustainable Mutual Funds ETFs/ETNs: December 2018 Leader/Laggards The best performing iPath Carbon ETN is a highly volatile $12.6 million exchange-traded note (its 3-year monthly standard deviation is 18.12 versus, for example, 3.26 for the iShares MSCI KLD 400 Social ETF) that provides exposure to the global price of carbon by referencing the price of carbon emissions credits from the world’s major emissions related mechanisms.  At the other end of the range, the lowest return was posted by Parnassus Endeavor Fund Investor Shares, a $3.7 billion fund that invests in large capitalization stocks “with low turnover and high conviction in approximately 30 holdings.” The fund “invests in companies that represent Parnassus' clearest expression of ESG investing: portfolio companies must offer outstanding workplaces, and must not be engaged in the extraction, exploration, production, manufacturing, or refining of fossil fuels. This workplace focus can result in significant exposure to technology companies, many of which are leaders in offering positive and innovative workplaces.”  Parnassus recognized that the market was overvalued and its strategy had been to avoid highflyers.  Even as this was intended to manage downside risks, the fund was hit hard due to its heavy weighting in technology that was partially offset by avoiding the poorest performing energy sector.  Beyond that, some of the fund’s positions suffered declines in some of its heavily weighted stocks ranging from 29% to 18% during the month of December. Average total return results across the same range of funds in operation throughout the entire quarter and calendar year 2018 were -10.37% and -7.68%, respectively.  For more detailed December 2018 performance results, refer to December 2018 Sustainable Investment Funds Performance Results. Sustainable funds closed December at an all-time high with $390.4 billion Sustainable funds reached an all-time high of $390.4 billion in assets as of December 31, 2018 with the net addition of $75.3 billion in December. Refer to Chart 2.  The entire increase is attributable to fund re-brandings, or repurposing of existing funds, which added a total of $99.5 billion while market movement and net cash outflows during the volatile month depressed the value of sustainable assets by $20.7 billion and $3.5 billion, respectively. Also contributing to positive flows in December were eight new fund launches form American Century, Deutsche Asset Management, Eventide, Gotham and Natixis Funds that together contributed $280.2 million in new assets. Twenty funds consisting of 135 funds/share classes sourced to six investment management firms repurposed existing funds with total net assets of $99.5 billion.  The largest of these, in terms of asset shifts, were sourced to two firms, JP Morgan and Washington Mutual.  JP Morgan adopted an ESG integration approach for its funds while the American Funds American Mutual Fund implemented a negative screening policy that precludes the fund from investing in companies deriving the majority of their revenues from alcohol or tobacco products.  On a combined basis, these two firms shifted a total of 14 funds with combined assets of $87.9 billion in assets. For the year as a whole, the increase of $141.5 billion from $250 billion at December 31, 2017 is attributable to three factors, including market movement, fund re-brandings and net cash flows.  By far, the largest contributor to the increase is attributable to the rebranding of existing funds, which added $155.9 billion, net cash inflows that netted an estimated $13 billion in assets while market movement depressed the value of assets by an estimated $27.4 billion. Sustainable (SUSTAIN) Large Cap Equity Fund Index Explained The index, which was 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 that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons.  While methodologies vary, to qualify for inclusion in the index, funds in excess of $50 million in net assets must actively apply environmental, social and governance (ESG) 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. Multiple funds managed by the same management firm may be included in the index, however, a fund with multiple share classes is only included in the index once, based on the largest share class in terms of assets.  The index is equally weighted, it is calculated monthly and rebalanced once a year as of December 31. The combined assets associated with the ten funds stood at $21.2 billion and represent about 13.7% of the entire sustainable US equity sector that is comprised of 220 funds/share classes, including actively managed funds and index funds, with $154.4 billion in assets under management. Sustainable (SUSTAIN) Bond Fund Indicator Explained This benchmark, which was initiated as of December 31, 2017, tracks the total return performance of the five largest actively managed investment-grade intermediate-term bond mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons.  While methodologies vary, to qualify for inclusion in the benchmark, funds in excess of $50 million in net assets must actively apply environmental, social and governance (ESG) criteria to their investment processes and decision making. In tandem with their ESG integration strategy, funds may also employ exclusionary strategies, impact-oriented investment approaches as well as issue-oriented advocacy. Multiple funds managed by the same management firm may be included in the benchmark, however, a fund with multiple share classes is only included once, based on the largest share class in terms of assets.  The indicator is equally weighted, it is calculated monthly and rebalanced once a year as of December 31. At the time it was constructed as of December 31, 2017 less than 10 funds qualified under the criteria set forth above and for this reason to distinguish this measure from a more robust one in terms of number of constituent funds, the benchmark is referred to as an indicator rather than an index.  The combined assets associated with the five funds stood at $2.7 billion and these funds account for 15.3% of the entire sustainable US taxable fixed income sector that is comprised of 109 funds/share classes, including actively managed funds and index funds for a total of $17.8 billion in assets under management. [/ihc-hide-content]

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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.[ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The new green bond funds offer additional investment choices for financial intermediaries and investors.  That said, the small but growing band of existing and new green bond funds are not identical and these should be subjected to a thoroughly evaluation before investing. Key product considerations are the management firm, the fund’s mandate and investment approach, fund specific characteristics such as fund size and expense ratios as well as the fund’s investment track record, to the extend there is one. Recent developments and publication of climate reports offer severe warnings Recent developments, headlines and environmental related concerns include (1) the severe weather events and natural disasters that featured prominently in the last year or so, with record breaking hurricanes, torrential monsoon rains, fires, such as the twin wildfires in California, and historic flooding that claimed lives and destroyed property in the Caribbean, South Asia and the US, (2) the publication of several authoritative scientific research reports on the status of global warming and climate change. The reports conclude that the world continues to emit historic levels of carbon dioxide and other greenhouse gas emissions.  Further, the reports update previous assessments and offer dire warnings of the devastating impacts resulting from global warming and the intensity as well as speed with which these impacts are occurring—even as some skeptics still push back on the science and implications of climate change, (3) the convening in Katowice, Poland of COP 24, or the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change, and the agreement reached by climate negotiators to bolster the 2015 Paris Climate Agreement. Included in the agreement are transparent reporting requirements for greenhouse gas emissions and some progress toward curbing such releases, and (4) the continuing backlash in the US in response to the current Administration’s environmental policies and initiatives, such as the threat to withdraw from the Paris Climate Agreement, environmental regulatory rollbacks in areas such as fossil fuels, Clean Power Act, tailpipe emissions, clean water and renewable energy, or at COP 24 the siding with Russia, Saudi Arabia and Kuwait in blocking endorsement of a landmark study on global warming. What are green bonds? Green bonds are equivalent to other fixed income securities, both taxable and tax-exempt, except that these types of bonds raise funds specifically to finance new and existing projects with environmental benefits.  Green bonds include securities issued by sovereigns, development or supranational banks, corporations, states, cities and local government entities, such as water, sewer or transportation authorities.  Green bonds are issued in the form of senior unsecured obligations, project finance or revenue bonds, notes as well as securitizations that collateralize projects or assets whose cash flows provide the first source of repayment. In the future, new green bond structures are likely to be introduced.  Also, green bonds, like all other bonds, vary as to credit quality, ranging from investment grade to non-investment grade; and they are issued in varying maturities that can range from short-to-long term as well as different rates of interest or yields.  Regardless of structure, green bonds are generally issued pursuant to a set of voluntary guidelines or a set of best practices in the form of a framework known as the Green Bond Principles (GBP)[1]. The GBP framework, which emphasizes disclosure and transparency, includes criteria for the use of proceeds, the issuer’s process for project evaluation, the management of proceeds and reporting both at the time of issue and on a periodic basis thereafter. Still, there are variations around the interpretation and application of these Green Bond Principles that may lead to some uncertainties. The offerings can be informed and the potential uncertainties mitigated, but not eliminated entirely, by relying on external independent reviews for assurances or certifications.

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Green bond proceeds may be used to finance a variety of project categories aimed at addressing key areas of environmental concern such as climate change, natural resource depletion, loss of biodiversity and/or pollution control.  While not limited to these, the following categories will generally qualify for the ultimate investment of proceeds:  renewable energy, energy efficiency, pollution prevention and control, sustainable management of living natural resources, terrestrial and aquatic biodiversity conservation, clean transportation, sustainable water management, climate change adaptation, and eco-efficient products, production technologies and processes. For sustainable investors generally, thematic-oriented or impact investors, in particular, green bonds are uniquely suited to meet environmentally-oriented sustainable objectives. This is because they are specifically intended to achieve positive environmental and other societal benefits.  Further, issuers make commitments to disclose, in the form of periodic reporting, usually annually, the allocation of proceeds and their expected environmental impacts, either in quantitative and/or qualitative terms, and their yields as well as pricing are equivalent to any other bond issued by the same issuer.  Put another way, green bonds, at least in the primary market, trade in line with their non-green counterparts. Green bonds have grown rapidly, mobilizing capital for use in achieving climate solutions; $162 billion issued through mid-2018 and an estimated $519 billion since inception The issuance of green bonds across the world has been expanding rapidly in recent years.  Last year issuance reached $163 billion and this year green bonds volume is expected to exceed that level given that $162 billion has been issued through mid-December. Refer to Chart 1. Since their introduction in 2007, an estimated $519 billion in green bonds have been issued by hundreds of issuers across the globe, including development banks, such as the World Bank, sovereigns, such as France and Poland, sub-sovereigns and municipalities, which may include taxable and tax exempt instruments, and corporations, and in the form of project finance transactions and securitizations, such as automobiles and residential mortgages. A key reason for the growth and development of green bonds is their role in mobilizing capital toward climate solutions.  The success of the UN Paris climate agreement that was negotiated at the end of 2015 and went into effect in November 2016 which aims to reduce greenhouse gas emissions to net zero levels between 2055 and 2070 so as to achieve a targeted 2° or even lower 1.5° Centigrade limit on the warming of the earth’s surface temperatures to avoid catastrophic climate change will require an unprecedented allocation of capital, measured in trillions of dollars a year.  To this end, green bonds are gaining attention for their potential role in mobilizing capital toward climate solutions.  Although traditional finance techniques will also have to be mobilized for this effort, the need to finance climate solutions in combination with growing investor demand should continue to lift green bond issuance beyond 2018. Investing in green bonds via mutual funds and ETFs While purchasing individual green bonds is an option for some investors, albeit one that requires scale and is research intensive, an alternative for investors interested in green bonds is to invest in a green bond mutual fund and/or ETF. Until October of this year, individual or institutional investors seeking a dedicated green bond fund were limited to three options.  These are the  Calvert Green Bond Fund, Mirova Global Green Bond Fund and VanEck Vectors Green Bond ETF.  In addition to more detailed information that appears in Table 1, the following in brief are comments regarding each fund: The Calvert Green Bond Fund is the oldest and largest dedicated green bond fund that invests in US as well as foreign bonds, both investment-grade as well as non-investment-grade. At $167.1 million in net assets, this fund is the only one to have reached scale that, in turn, mitigates liquidity risk and permits the achievement of diversification. Another positive is that the fund’s shareholder base is dominated by more stable institutional investors that account for $124.2 million or 74% of the fund.  Individual investors are disadvantaged as they are subject to an expense ratio of 0.85% on top of a maximum upfront sales charge of 3.75% that detract from the fund's performance. The fund’s 12-month, three-year and five-year performance track record through the end of November 2018, without accounting for upfront sales charges where these may be applicable, lags the performance of its ICE BofA/ML Green Bond Index-Hedged. At the same time, the fund’s two share classes, again without accounting for upfront sales charges, exceeded the performance of the boarder-based investment-grade Bloomberg Barclays Global Aggregate Index over the tailing 12-month and five-year intervals, however, the reverse is true for the three-year period.  Refer to Chart 2. The Mirova Global Green Bond Fund is managed by the second largest European manager of open-end SRI funds and social business funds and an affiliate of Ostrum Asset Management (formerly Natixis), was introduced more recently, in February 2017. Also pursuing a mandate similar to Calvert’s, the fund has only managed to attract $28.6 million since inception and retail investors are subject to a high 0.96% expense ratio on top of an even higher maximum sales charge of 4.25%.  Another potential issue that invites further due diligence is the firm’s announcement on November 14, 2018 that, effective immediately, Christopher Wigley, the fund’s co-portfolio manager since inception and the firm’s green bond face to the public for some years, is no longer managing the fund.  While the fund is likely to remain on course, it does raise some questions that invite further inquiry. Over the latest twelve months, the fund’s A shares, even before accounting for the upfront sales charges, and its N and Y shares that are subject to lower expense ratios, trailed the ICE BofA/ML Green Bond Index-Hedged. On the other hand, as was the case with Calvert, fund’s three share classes, again without accounting for upfront sales charges where applicable, exceeded the performance of the boarder-based investment-grade Bloomberg Barclays Global Aggregate Index over the tailing 12-month period.  Refer to Chart 2. The VanEck Vectors Green Bond ETF was launched by Van Eck Associates in March of 2017. This index fund seeks to track the performance of the S&P Green Bond Index.  It now manages $25.2 million and recently lowered its expense ratio from 0.40% to 0.30% in anticipation of the additional competition in the category.  In addition to its small size, the fund’s performance through November 30, 2018 trails its underlying benchmark by 50 bps.  Refer to Chart 1. With the launch of the latest funds, individual and/or institutional investors interested in a dedicated green bond fund now have six options from which to choose. Table 1 offers a complete listing of these funds, a brief description of their mandates, fund sizes, expense ratios and performance commentary. Based on the information covered in Table 1, the following observations are relevant for consideration in assessing each fund’s risk profile, attributes and investor alignment: All six funds are offered by established investment management firms, although in the case of Mirova as noted earlier, the lead portfolio manager recently departed. Only the Calvert Green Bond Fund has been in operation for an interval of three years or longer. Two of the six funds are passively managed funds while the other four are actively managed mutual funds. One fund, the TIAA-CREF Green Bond Fund’ restricts its investments to US bonds while the mandate adopted by the other five funds allow these to invest in securities of issuers outside the US. Funds investing in non-US dollar securities are exposed to currency risk which may be hedged. Five funds invest in green bonds issued in emerging markets. Five of the six funds can invest in below investment-grade bonds. Expense ratios vary and range from a high of 96 basis points to a low of 20 bps. Performance histories are limited and are at this point only available for three funds.  That said, firms like Allianz, BlackRock and TIAA-CREF have burnished their credentials in this market segment as they have been active in the green bonds market for some years now and they have invested in these instruments through other investment vehicles. New funds may be restricted by their ability to achieve a diversified portfolio and may be exposed to some liquidity risk until they reach scale, roughly at $50 million in net assets. Unlike the underlying green bond issuers that may offer varying levels of disclosure as to environmental outcomes and impacts, portfolio level disclosures as to outcomes and impact across the three existing green bond funds is lacking.  Based on disclosures made in annual and semi-annual reports, none of the existing green bond funds offer such information for the benefit of investors seeking to understand the impact of their investments. Corollary literature offered by these firms on their websites do not offer supplemental impact disclosures. It remains to be seen whether the existing funds or the new funds will offer investors more transparency on portfolio level environmental outcomes and impacts.     [1] Refer to Green Bond Principles (GBP).  See http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ]Within this range that saw more negative returns than positive and growth stocks outperforming value-oriented stocks, the S&P 500 Index eked out a narrow gain of 0.57% in September even as US stock markets reached all-time new highs. Sustainable funds and ETFs recorded an average drop of -0.37%. Sustainable funds and ETFs[1] recorded an average drop of -0.37%. Beyond the month of September, the S&P 500 recorded the best quarterly increase since 2013, up a strong 7.71%, buoyed by robust economic growth and strong corporate earnings.  For the year-to-date and trailing 12-month intervals, the index produced strong gains of 9.94% and 16.11%, respectively.  On the other hand, small company stocks, as measured by the Russell 2000, posted their second worst decline this year.  The -2.4% September drop narrowed the year-to-date outperformance of small firms relative to large ones and given their declining relative performance differentials may be signaling a loss of momentum for small stocks.  Refer to Chart 1. Bonds closed the month lower, posting negative results of -0.66% but recording a slight third quarter gain of 0.01% Bonds closed the month lower, posting negative results of -0.66% against a backdrop of rising yields due to increasing interest rates, continued optimism about the domestic economy and waning fears about the outlook outside the US. As measured by the Bloomberg Barclays US Aggregate Index, investment-grade intermediate bonds finished the quarter with a slight gain of 0.01% while year-to-date and trailing 12-month results ended lower at -1.60% and -1.22%, respectively.  Longer-dated 30-year bonds were off 6.53% year-to-date.  Concurrently, some indexes around the globe have struggled with a slowdown in economic expansion and a stronger US dollar.  The MSCI Emerging Markets Asia posted a decline of -1.69% while MSCI China recorded a loss of -1.4%.  At the same time, the MSCI EAFE Index edged out the S&P 500 with a gain of 0.87% in September. 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 After a weak start to the month when investors returned from the Labor Day weekend to be greeted by news about the bear market in emerging markets, highflying tech names such as Facebook, Inc. (FB), Microsoft Corp. (MSFT) and Alphabet, Inc. (GOOGL) sold off and then rebounded. The selling reversed itself and stocks indexes powered higher despite the Trump Administration’s imposition of 10% tariffs on $200 billion of Chinese products that were countered by China’s retaliation with 5%-10% levies on $60 billion of U.S. goods. It turned out, however, that the tariffs were less severe than expected and trade tensions, while they continue to linger, didn’t escalate as much as feared while the dollar continued to ease. With that, investor sentiment turned and the focus shifted to positive fundamentals, such as US economic growth, strong corporate profits that are expected to expand by a projected 19% from a year earlier, and strong consumer confidence.  This was fueled by the Labor Department’s end of month report that the number of Americans filing for unemployment benefits unexpectedly fell and hit the lowest level in nearly 49 years—pointing to robust labor market conditions.  The positive outlook was reinforced toward the end of the month when the Federal Reserve Board described economic conditions as “strong.” This was communicated in conjunction with the Fed’s announcement of the widely expected increase to 2% -2.25% of its benchmark interest rate, for the eighth time since 2008, and signaling that it planned to continue to raise interest rates.  The Fed also updated the economic projections from members of the Fed’s Board of Governors and regional Fed presidents. The most notable change in this set of projections was a steep upgrade in expectations for economic growth this year. Fed officials’ median forecast now calls for GDP growth to hit 3.1% in 2018, up from 2.8% in June’s projections and substantially higher than the Fed’s forecast for 2.5% GDP growth this year at the end of 2017. These developments drove the US stock market higher, pushing both the S&P 500 Index and the Dow Jones Industrial Average to reach new all-time highs as of September 20. The Nasdaq Composite pierced through its all-time high the day before.  Since then, however, the markets have backed off as investors have begun to reassess the potential for higher interest rates and inflation. 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 Against this backdrop, the SUSTAIN Large Cap Equity Fund Index, which tracks the total return performance of the ten largest actively managed large-cap U.S. equity oriented mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices, registered a gain of 0.52% in September and 7.71% in the third quarter. This was 30 basis points behind the increase of 0.57% posted by the S&P 500 Index in September and 60 bps behind the S&P 500 in the third quarter. 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 In contrast to the relative performance of 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. The SUSTAIN Bond Fund Indicator, which represents the total return performance of a cohort of five sustainable bond funds consisting of similarly managed funds that, like the equity index counterpart, employ sustainable investing strategies beyond absolute reliance on exclusionary practices that track the Bloomberg Barclays U.S Aggregate Index, posted a decline of -0.59% in September versus -0.64% generated by the Bloomberg Barclays U.S. Aggregate Index. Extending the time frame beyond the latest month, the SUSTAIN Bond Fund Indicator also outperforms the Bloomberg Barclays index in the third quarter, year-to-date and 12-month intervals. That said, the results achieved by both over the last twelve months have been negative. Refer to Chart 2. Sustainable model portfolios lagged their respective indexes in September, posting results that range from a positive 0.21% to -0.37 The Aggressive Sustainable Portfolio (95% stocks/5% bonds), Moderate Sustainable Portfolio (60% stocks/40% bonds) and the Conservative Sustainable Portfolio (20%/80%) produced total returns in September that range from a high of 0.21% to a low of -0.37%. These outcomes trailed behind each portfolio’s designated benchmark as the three underlying funds fell behind in September. Refer to Table 1. While the results are more robust, the same is true for the third quarter when the portfolios recorded gains ranging from 2.03% for the Conservative Sustainable Portfolio to 6.07% posted by the Aggressive Sustainable Portfolio. Refer to Table 1. The model portfolios’ relative performance results are mixed when evaluated over the nine-month and 12-month intervals through September as the returns posted by Domini Impact International Equity Investors shares fell behind the MSCI EAFE Index (NR) by 2.34% and 3.78%, respectively. Still, since inception, the three model portfolios are leading their respective benchmarks by wide margins, ranging from 8% for the Conservative Sustainable Portfolio to as much as 19.4% for the Aggressive Sustainable Portfolio. Refer to Chart 3. Sustainable funds register average gain of 0.37% and performance ranged from 3.13% to -5.85% Sustainable mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) posted an average gain of 0.37%, with 47% of funds recording results ≥0.00% The top performing funds/share classes in September were the five share classes offered by the very small $1.6 million Aberdeen Japanese Equity Fund whose performance ranged from 3.13% to 3.04% due to upfront as well as deferred sales charges, versus the MSCI Japan (NR) Index that gained 3.04%. Managed by Aberdeen Standard Investments, the fund, according to its prospectus, employs a fundamental, bottom-up equity investment process that also fully integrates environmental, social and governance (ESG) considerations into investment decisions for all equity holdings.  Further, this represents an integral component of the manager’s quality rating for all companies. At the other end of the performance range in September were the $1.1 billion Morgan Stanley Institutional Emerging Markets Leaders Fund and Dreyfus Global Emerging Markets C shares. These funds registered declines that averaged -5.76% versus the MSCI Emerging Markets (NR) loss in September of -0.53%.  While their performance in September were in line with each other, the approaches being taken by the two funds with regard to ESG vary.  Morgan Stanley Investment Management Company takes into account information about environmental, social and governance issues when making investment decisions, including engaging company management around corporate governance practices as well as what Morgan Stanley deems to be materially important environmental and/or social issues facing a company. The investment process also excludes holdings in tobacco companies. In contrast, the Dreyfus Global Emerging Markets Fund emphasizes governance considerations as well as a focus on investment themes based primarily on observable global economic, industrial, or social trends.  Refer to Table 2. Sustainable funds close 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 The net assets of 1,096 sustainable funds[1], including mutual fund share classes, exchange-traded funds (ETFs) and exchange-traded notes (ETNs), ended the month of September with $321.9 billion in assets under management versus $310.5 billion at the end of August.  The increase in net assets for the month, in the amount of $11.4 billion, was sourced to repurposed funds that added a total of $10.9 billion attributable to three fund firms, including two new fund group additions to the sustainable funds sphere, and a total of eight funds and 31 share classes in total.  In addition, the segment benefited from an estimated positive net cash flow in the amount of $1.65 billion, including the launch of three new ETFs in September, while market movement contributed to a decline in assets to the tune of about -$1.2 billion.  Refer to Chart 4. Mutual fund assets stood at $312.6 billion as of the end of September while ETFs and ETNs closed the month at $9.3 billion, for increases of $11.2 billion (3.7%) and $220.7 million (2.3%), respectively, relative to last month. The relative proportion of the two segments remain unchanged at about 97% and 3%, respectively. Assets sourced to institutional only mutual funds/share classes, 408 in total, versus all other funds gained $7.6 billion, or 7.4%, to $110.3 billion.  This investor group account’s for 34.2% of the segment’s assets, versus $102.7 billion at the end of August. At the end of September, the universe of explicitly designated mutual funds and ETFs/ETNs were sourced to 120 firms[2], including the addition the Jensen and Calamos fund groups with their repurposed funds while three new ETFs were launched, including the Vanguard ESG International Stocks ETF and Vanguard ESG US Stock ETF as well as the Impact Shares Sustainable Development Goals Global Equity ETF. [1] 1,091 funds reported performance results for the full month of September 2018.  Further, 5 share classes offered by the Franklin Select US Equity Fund with $99.8 million in assets are excluded from the September analysis as their most recent prospectus does not reflect the adoption of a sustainable strategy or approach. [2] BlackRock and iShares are treated as two separate fund groups. [/ihc-hide-content]

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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%.[ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The segment is also down for the quarter, year-to-date and trailing twelve months as contrasted to large cap equities that are in positive territory over these intervals. 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% (Refer to SUSTAIN Large Cap Equity Fund Index Up 0.90% in June, Leading S&P 500 Index by 28 BPS). Strong economic growth prospects in the second quarter and positive geopolitical news that a summit with North Korean leader Kim Jong Un and President Trump will take place gave way to concerns regarding higher interest rates and trade war tensions between the U.S., the European Union, Canada, Mexico and China. The broad stock market began the month on a positive note, registering its best daily gain of 1.08% on news that the on-again off-again summit with North Korean leader Kim Jong Un will proceed to take place in Singapore on June 12th as initially planned. For now, this development seemed to defuse concerns about the threats of a nuclear showdown and tilted the market’s focus on the broader economic growth in the second quarter, including positive news on the jobs front that saw the unemployment rate in May drop down to the lowest level since April 2000 to an adjusted 3.8%, as well as strong corporate earnings. The market recorded further advances through June 12th, the day of the summit, reaching a peak for the month of 3.01%, but trending lower thereafter. Stocks fell in response to the Federal Reserve’s decision, for the second time this year, to raise the federal-funds rate by a quarter-percentage point to a range between 1.75% and 2%. The Federal Reserve Board also telegraphed its intention to raise rates four times this year, up from a projection of three at the March 2018 meeting. 10-year Treasuries reached 2.98%, the highest level for the month, following the Federal Reserve Open Market Committee’s announcement on June 13, but ended the month lower at 2.85%, down 2 basis points versus the start of the month. At the same time, the spread between 10-Year and 2-Year Treasuries, a precursor to a recession, narrowed to 33 bps from 43 bps at the end of May. In the end, interest rate considerations were eclipsed by tensions over the Trump administration's trade policies, including a decision earlier in the month to impose tariffs on steel and aluminum imports from the European Union (EU), Canada and Mexico. The EU in turn retaliated by placing tariffs on many U.S. products such as Harley-Davidson motorcycles and bourbon. President Trump’s action was escalated when it was announced on June 16th that fresh tariffs would be placed on $50 billion in Chinese goods and this, in turn, prompted swift retribution from Beijing. Stocks in the U.S, shifted lower after peaking for the month on June 12th. Further, trade tensions reverberated in Europe and China as investors grew more concerned about the impact this could have on the world’s second largest economy where growth might already be starting to weaken. At the same time, the trade conflict could dent European corporate profits and dent a still fragile European economy. This was reflected in the performance of stocks in Europe and China which posted June declines of -1.22% and -5.46%, respectively. Emerging market stocks were the hardest hit in June, recording a decline of -4.2% according to the MSCI Emerging Markets Index as emerging market countries were coming under growing economic stress in part due to a strong dollar. Oil prices reached their highest level in more than 3-years toward the end of the month, with Brent crude reaching $77.62 on June 27, as threats to global supply gathered momentum on the heels of harsh rhetoric from the U.S. government on Iran sanctions and a surprising drop in U.S. crude inventories reported by the U.S. Energy Information Administration. This even in the light of the Organization of the Petroleum Exporting Countries decision a week earlier to increase production. In turn, energy shares, which have historically been closely tied to the price of oil, posted their best quarterly gain since 2011. Small stocks, which generate most of their revenue domestically, benefited this year from the trade tensions, a rising dollar and concerns about weaker global growth. Conversely, the dollar’s rally and expectations of strong U.S. growth are upending investments across the globe, affecting commodity prices and emerging markets. Model Portfolios Post Slight Negative Results in June but Deliver Positive Total Returns in the Second Quarter The Aggressive Sustainable Portfolio (95% stocks/5% bonds), Moderate Sustainable Portfolio (60% stocks/40% bonds) and the Conservative Sustainable Portfolio (20%/80%) posted negative returns in the month of June, driven by the negative results recorded by both Domini Impact International Equity Fund-Investor Shares (-2.49%) and TIAA-CREF Social Choice Bond-Retail Shares (-0.06%). The three model portfolios also lagged their non-sustainable benchmarks. The reverse, however, is true in terms of second quarter performance results. During the latest three month interval, the three model portfolios posted positive results and exceeded the performance of the same underlying indexes. Refer to Table 1. Since inception, the three model portfolios, which were reconstituted as of January 1, 2018 to add foreign equity exposure (refer to Chart 1 footnote), continue to generate strong total return results both in absolute terms as well as relative to their non-sustainable indexes. The underperformance results in June slightly narrowed the differentials in the cumulative returns since inception between the model portfolios and their comparison indexes. These differentials now range from a cumulative low of 7.9% applicable to the Conservative Sustainable Portfolio, to 13.8% for the Moderate Sustainable Portfolio and 18.9% applicable to the Aggressive Sustainable Portfolio. Refer to Chart 1. Sustainable Funds Register Average Loss of –0.54% in June, Ranging from a High of 4.48% to a Low of -10.78% For a universe of 1,004 sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) and their corresponding share classes, returns for the month of June averaged -0.54%. These include all funds registering performance results for the full month. A total of 420 funds, or 41.8%, posted 0.00 to positive results for the month. In line with the month of June’s best capital market segment results, the highest return of 4.48% was posted by the Morgan Stanley Inst US Real Estate Fund I, a fund that recently amended its prospectus to reflect that the fund’s adviser may consider information about environmental, social and governance (ESG) issues in its bottom-up stock selection process when making investment decisions. Further, the fund’s adviser, Morgan Stanley Investment Management Inc., may engage with company management regarding corporate governance practices as well as what the adviser deems to be materially important environmental and/or social issues facing a company. Negatively impacted by the decline in the yuan against the dollar for the reasons noted previously, the worst performing fund was the KraneShares MSCI China Environment ETF, down -10.78%. The ETF seeks to track the performance of the MSCI China IMI Environment 10/40 Index, comprised of securities that derive at least 50% of their revenues from environmentally beneficial products and services. The index is based on five key Clean Technology environmental themes: Alternative Energy, Sustainable Water, Green Building, Pollution Prevention and Energy Efficiency. The index aims to serve as a benchmark for investors seeking exposure to Chinese companies that focus on contributing to a more environmentally sustainable economy by making efficient use of scarce natural resources or by mitigating the impact of environmental degradation. Constituent selection is based on ESG data provided by MSCI. Refer to Table 2. Sustainable Funds End the First Half of the Year at $285.9 Billion, Adding $1.9 Billion but Experiencing $375.2 Million in Net Outflows The net assets of 1,025 sustainable funds, including mutual funds, ETFs and ETNs, ended the month of June with $285.9 billion in assets versus $283.9 billion at the end of May-for an increase of $1.9 billion or 0.68%. Since the start of the year, sustainable funds have added $35.5 billion, but much of that sum, $30.9 billion, or 87%, is attributable to repurposed funds, that is existing funds that have formally adopted a sustainable strategy or approach by amending their prospectus. ETFs and ETNs closed the month at $8.5 billion while mutual funds stood at $277.4 billion as of June 30, 2018. A total number of 1,025 funds offered by 115 fund groups, including share classes, ETFs and ETNs were in operation at the end of June, reflecting an increase of 60 funds that included repurposed funds and new fund and/or share class launches. New funds that were funded as of the end of June include the $7.9 million Amplify Advanced Battery Metals and Materials ETF and $25.2 million Fidelity Sustainability Bond Index Fund. Refer to Chart 3. [/ihc-hide-content]

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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 [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The S&P 500 Index posted its second consecutive monthly decline in March, giving up -2.54% while the NASDAQ Composite Index and Dow Jones Industrial Average (DJIA) recorded even steeper drops of -2.79% and -3.59%, respectively, as investor sentiment shifted after January due to concerns around trade, inflation, interest rates, as well as increasing fears starting in March that social network companies and other internet firms might face revenue constraints if they were to become subject to new regulations designed to protect customer data and user privacy. These anxieties were likely accentuated by deepening concerns about the lack of strategic and thoughtful leadership emanating from Washington D.C. and reflected in a dramatic uptick in volatility that began at the end of January. The S&P 500 Index moved up or down by more than 1% during nine trading days in March, 12 trading days in February and in contrast, only two trading days in January, for a total of 23 trading days during the first quarter.  This is already triple the number of volatile days in all of 2017.  Refer to Chart 1. During the month, eight of the eleven sectors that make up the S&P 500 suffered reversals ranging from -1.12% for the Telecommunications Sector to -4.46% recorded by Financials. Only three sectors posted positive results, including Utilities (+3.41%), Real Estate (+3.26%) and Energy (+1.55%), the latter benefiting from oil prices that rose 7.5% during the quarter. Information Technology was the second worst performing sector, down -3.95%. Small-cap stocks moved in the opposite direction, gaining 2.04% according to the S&P SmallCap 600 Index and ending the quarter with a slight gain of 0.57%.  In general, larger value stocks outperformed growth stocks in March by around 94 basis points, but both market segments sustained declines in excess of 2% while diverging over the entire quarter.  A slight blend-to-value tilt on the part of the underlying funds may have helped the SUSTAIN Equity Fund Index outperform the S&P 500 by 54 bps.  European stocks were down -1.80% while emerging markets recorded a similar -1.86% total return. On the other hand, bonds, according to the BBgBarc U.S. Aggregate Bond Index, gained 0.64% as interest rates, measured by 10-Year Treasury yields, dropped by 13 basis points from 2.87% to 2.74% at the end of March. At the same time, the SUSTAIN Bond Fund Indicator was up 0.50%. For the full quarter, investment-grade bonds ended with a -1.46% loss. Against a backdrop of broad underlying fundamentals that remain attractive but subject to skepticism in some quarters, bolstered in March by the passage of a $1.3 trillion spending bill crafted by Congress and signed by the President that once again avoided a government shutdown, the S&P 500 Index registered the second monthly loss of the quarter, thus erasing entirely January’s strong gain and ending the first three months of the year in the red at -1.46% and the first down quarter going back to the third quarter of 2015. Since reaching its peak on January 26th, the market is down 8.08% through the end of March and it remained in correction territory after dropping -10.2% in a nine trading day period to February 8th.  Still, this leaves stocks ahead 13.99% over the trailing 12-months, as measured by the S&P 500 Index. Sustainable Model Portfolios Post Declines but Outperform their Corresponding non-ESG Indexes Each of the three model portfolios, Aggressive Sustainable Portfolio, Moderate Sustainable Portfolio and Conservative Sustainable Portfolio, posted declines for the second month in a row. While less severe relative to February when both equities and bonds produced losses, the March results ranged from -0.39% recorded by the Conservative Portfolio to -2.38% attributable to the Aggressive Portfolio. In each instance, the Portfolios lagged their corresponding benchmarks within a narrow range of one to eight basis points.  This was due to the fact that only one of the three underlying funds exceeded the performance of their corresponding non-sustainability oriented indexes. Refer to Table 1. The Domini Impact International Equity Fund Investor Shares is the only fund in March to beat its MSCI EAFE Index, posting a -1.55% return versus -1.8% recorded by the index. On the other hand, the Vanguard FTSE Social Index Investor Shares and TIAA-CREF Social Choice Bond Retail Shares posted returns that trailed their respective benchmarks by 17 bps and 4 bps, respectively. For the quarter, each of the SRI Portfolios outperformed their corresponding non-sustainability oriented indexes but offered small comfort with their negative returns. In a reversal due to the strong results achieved by stocks in January (+5.73%) as contrasted to the decline posted by bonds (-1.15%), the Aggressive Sustainable Portfolio ended the quarter with a smaller loss relative to the heavy bond-weighted Conservative Sustainable Portfolio. Refer to Chart 2.   Sustainable Funds Register Average Loss of -0.69% in March, Ranging from a Low of -4.33% to a High of +34.4%   Within a universe of 909 sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) and their corresponding share classes, returns for the month of March averaged -0.69%. A total of 278 funds, or 31%, posted 0.00 to positive results for the month. The highest return for the third consecutive month was delivered by the iPath Global Carbon ETN, a $5.7 million exchange-traded note that provides exposure to the global price of carbon by referencing the price of carbon emissions credits from the world’s major emissions related mechanisms. This highly volatile ETN was up +34.4% and +69.71% on a year-to-date basis. At the other end of the range is the AMG Manager Fairpointe ESG Equity Fund that posted a decline of -4.33%. This mid-cap value equity oriented fund invests in companies that are deemed to have strong environmental, social and governance (ESG) records and seeks to avoid those with inferior ESG records relative to the market and peers. Refer to Table 2. Sustainable Funds Close March at $272.0 Billion, Adding $9.7 Billion as Two Fund Groups Repurpose Existing Funds  The net assets of 909 sustainable funds, including mutual funds, ETFs and ETNs, ended the month of March at $272.0 billion versus $257.2 billion at the end of February.  An estimated $2.1 billion is attributable to the decline in stock prices that was offset slightly by the gains posted by bond funds. Two fund firms, Putnam and Aberdeen Asset Management, repurposed 93 funds by formally integrating ESG factors into their funds’ investment strategies. These fund groups came in with $17.4 billion in March.  At the same time, the universe of sustainable funds experienced approximately $4.7 billion in net outflows or 1.8%.  Refer to Chart 3. Mutual funds ended the month at $264.3 billion, comprised of 842 funds and share classes, accounting for 97% of sustainable fund assets. ETFs and ETNs closed the month with $7.7 billion in assets across 67 ETFs. Corrected as to net outflows 4/14/2018 [/ihc-hide-content]

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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% [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] 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 gave up some 1.01%. Up to January 30, the S&P had notched 14 record closes over the course of the month[1].  The stock market continued to benefit from investor expectations for continued economic growth in the US and abroad and higher corporate earnings bolstered by the passage of the Tax Cuts and Jobs Act of 2017.  Even a short-lived government shutdown which was ended with a three-week spending bill extension passed by Congress after the close of trading on January 22nd was not enough to derail the market.  This was not the case, however, when concerns about interest rates, inflation, higher government deficits and higher national debt in the longer-term, surfaced at the end of the month and stocks reversed course. As for bonds, the Federal Reserve held interest rates steady at its first meeting of the year.  Still, 10-year Treasury note yields ended the month at 2.72%, up 32 basis points since the start of the year. In the process, investment grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, gave up 1.15%, the worst monthly decline since a drop of 2.27% in November 2016.  Emerging market stocks, like the S&P 500, recorded their best month since March 2016, registering a gain of 8.3% on the back of World Bank growth estimates released in early January for emerging markets and developing economies as a whole that are projected to strengthen to 4.5% in 2018. The second best monthly gain across the major asset classes was generated by crude oil which was up 7.2% for the month while developed markets gained 5.02% as measured by the MSCI EAFE Index. Against this backdrop, the SUSTAIN Large Cap Equity Fund Index, which tracks the total return performance of the ten largest actively managed large cap US oriented equity mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices, posted a strong 5.47% total return in January but lagged the S&P 500 Index by 26 bps. Refer to Chart 1. Yet, this was the best result achieved by the SUSTAIN Index since calculations were initiated as of January 2017.  Five funds exceeded the performance of the index itself while 4 funds eclipsed the gain achieved by the S&P 500. Sustainable Portfolios Reconstituted for 2018, Adding International Developed Markets Equity Exposure 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 third fund is the Domini Impact International Equity Investor Shares, which at almost $1.4 billion in total net assets across its 3 share classes, is one of the largest international sustainable funds available to retail and institutional investors. Managed by Domini Impact Investments and sub-advised by Wellington Management Company LLP, the fund has produced superior short and long-term performance results, net of fees, which tend to be higher, by combining, first and foremost, social and environmental standards and the application of quantitative stock selection modeling across a universe of international large cap and mid-cap companies. With this reconstitution, each of the three model portfolios preserve their overall equity to fixed income allocation while at the same time introducing international equity exposure to each portfolio.  Accordingly, the Aggressive Sustainable Portfolio still consists of 95% stocks and 5% bonds but the stock component has been reallocated to include 70% US equities and 25% international equities.  The Moderate Sustainable Portfolio still maintains its 60% stocks/40% bonds allocation but the stock component has been reallocated to include 45% US equities and 15% international equities. Lastly, the Conservative Sustainable Portfolio still maintains a 20% stocks/80% bonds allocation but the stock component has been reallocated to include 15% US equities and 5% international equities.  Refer to Table 1. Two of Three Sustainable Portfolios Post Results in Excess of Corresponding non-ESG Indexes In line with the performance of stocks and bonds that moved in opposite directions in January, the two sustainable equity funds that comprise the sustainable model portfolios produced positive results while the bond fund posted a decline. Moreover, two of the three funds, namely the Domini Impact International Equity Investor Shares, up 6.05%, and TIAA-CREFF Social Choice Bond Retail share class, which registered a decline of -0.97%, outperformed their corresponding non-ESG index during the month of January.  At the same time, the Vanguard FTSE Social Index-Investor Shares, which recorded a gain of 5.38%, lagged behind the S&P 500 by 35 basis points.  As a result, the Aggressive Sustainable Portfolio, dominated by its 70% exposure to US equities via the Vanguard FTSE Social Index Fund, was the only one to lag its corresponding non-ESG index for the month.  The Aggressive Sustainable Portfolio recorded a gain of 5.34% versus an increase of 5.38% for its corresponding non-ESG index.  The Moderate Sustainable Portfolio, as well as the Conservative Sustainable Portfolio, posted gains of 3.79% and 1.07% versus 3.73% and 0.90% for their corresponding indexes, respectively.  Refer to Table 2.   The performance of the reconstituted model portfolios was recast to October 2012. Each of the sustainable portfolios outperformed their corresponding indexes on a cumulative basis by margins of 7.86% for the Conservative Sustainable Portfolio, to 13.8% for the Moderate Sustainable Portfolio to 19.04% attributable to the Aggressive Sustainable Portfolio. Furthermore, while two of the reconstituted portfolios, namely the aggressive and moderate portfolios, lag their previous two fund model portfolio counterparts since inception, in each case the results are achieved with lower levels of volatility or risk during the interval between 2012 and January 2018.  Refer to Chart 2.   Sustainable Funds Post an Average Gain of 3.95% in January, Ranging from -1.58% to 15.03% Within a universe of 778 sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) and their corresponding share classes, returns for the month of December averaged 3.95%, ranging from a high of 15.03% achieved by the iPath Global Carbon ETN, an exchange-traded note that provides exposure to the global price of carbon by referencing the price of carbon emissions credits from the world’s major emissions related mechanisms and which has led for the second consecutive month, to a low of -1.58% posted by RBC Impact Bond I.  Refer to Table 3. Sustainable Funds Total Net Assets Reach Another Peak Level of $264.8 Billion, Largely on the Basis of Market Appreciation but also Net New Money Fund Reclassifications After ending the year at $250.4 billion in assets under management across 774 funds, sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) gained $14.4 billion in January 2018 and reached $264.8 billion, for 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. Over the trailing three months, sustainable funds added $30.2 billion in net assets.  Refer to Chart 3. Sustainable mutual funds ended the month with $257.1 billion, accounting for 97% of assets in this segment while ETFs and ETNs closed the month of January with $7.7 billion.  The assets of sustainable mutual funds experienced an increase of $14.2 billion, or 5.8% as compared to ETFs/ETNs that added just $411.4 million, or a gain of 5.7%. An estimated $11.8 billion, or 83% of the gain, is attributable to net capital appreciation. Further, 2 funds and their 11 corresponding share classes were reclassified or repurposed, for a total of $1.01billion.  These funds accounted for 7.1% of the monthly uptick.  After accounting for capital appreciation and reclassifications, an estimated $1.4 billion in net new cash flowed into the sustainable funds segment, for a month-over-month increase of 0.6%. [1] Stocks went on to post an even sharper reversal for a 10% correction in early February. [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] This marks the eighth sustainable oriented ETF launched by Nuveen since December 13, 2016, but it is the firm’s first fixed income fund. Attractively priced at 0.20% or 20 bps, the ETF is also the first to seek to replicate the broad investment grade US bond market by covering US government securities, debt securities issued by US corporations, residential and commercial mortgage-backed securities, asset-based securities and US dollar-denominated debt securities issued by non-U.S. governments and corporations. In doing so, NUBD extends coverage beyond the corporate sectors covered by the two iShares ESG fixed income ETFs launched by BlackRock in June of this year, namely the iShares ESG 1-5 Year USD Corp. Bond ETF (SUSB) and USD Corporate Bond ETF (SUSC). That said, the residential and commercial mortgage-backed securities as well as asset-based securities to be held in the fund are not evaluated and selected on the basis of ESG scores. NUBD joins a short list of sustainable fixed income index ETFs. It is only the fifth ESG oriented fixed income ETF index tracker fund available in the US and the first ETF to track the Bloomberg Barclays MSCI US Aggregate ESG Select Index. ESG Index Focuses on Bonds from Issuers that Exhibit ESG Leadership The Bloomberg Barclays MSCI US Aggregate ESG Select Index, which was launched by MSCI and Barclays in January 2013, uses a rules-based methodology. The methodology seeks to provide investment exposure that generally replicates the Bloomberg Barclays US Aggregate Bond Index through a portfolio of securities adhering to predetermined ESG criteria developed by MSCI[2]. The index is composed of US government securities, debt securities issued by US corporations, residential and commercial mortgage-backed securities, asset-based securities and U.S. dollar-denominated debt securities issued by non-U.S. governments and corporations. The Bloomberg Barclays US Aggregate Bond Index is the most widely used benchmark for purposes of tracking the performance of the US investment grade bond market. To qualify for inclusion in the index, corporate and US government securities that satisfy certain ESG criteria, based on ESG performance data collected by MSCI and evaluated to determine how well companies and other issuers with corporate like operations, manage environmental, social and governance risks and opportunities. These companies and other issuers are assigned an overall rating calibrated using a seven point scale from ‘AAA’ to ‘CCC.’ Generally, issuers with a rating of BBB or above are eligible for inclusion in the index. Of each key issue relative to industry peers. ABS and MBS are included in the index without reference to ESG criteria; other securities for which ESG performance data is not available are excluded from the index. Corporate debt and government securities that meet a minimum ESG rating threshold are eligible for inclusion in the Index. With respect to corporate debt securities, ESG performance is measured on an industry-specific basis, with assessment categories varying by industry. Environmental assessment categories can include a company’s impact on climate change, natural resource use, and waste management and emission management. Social evaluation categories can include a company’s relations with employees and suppliers, product safety and sourcing practices. Governance assessment categories can include governance practices and business ethics. The ESG criteria also consider how well a company adheres to national and international laws and regulations as well as commonly accepted global norms related to ESG matters. Excluded from the Index are Companies with Significant Activities in Controversial Businesses Index rules generally exclude companies with significant activities in certain controversial businesses, such as those involving alcohol, tobacco, nuclear power, gambling, firearms and other weapons and, based on data availability, bonds of issuers with any ownership of fossil fuel reserves and high carbon emitters based on annual MSCI established thresholds. So issuers in the independent oil and gas producer, integrated oil and gas producer and metals and mining sectors are ineligible for inclusion in the index.  With respect to government securities, US and non-US governments receive ESG ratings based on the government issuer’s performance on six ESG risk factors: natural resources, environmental externalities & vulnerability, human capital, economic environment, financial governance and political governance. Eligible securities are then market value weighted within each sector, with sector weights in the index adjusted to mirror the sector exposure of the non-ESG oriented Bloomberg Barclays US Aggregate Bond Index. NUBD generally uses a representative sampling strategy to achieve its investment objective, meaning it generally invests in a sample of the securities in the Aggregate Bond Index whose risk, return and other characteristics resemble the risk, return and other characteristics of the index as a whole. The index is rebalanced and reconstituted monthly. ESG ratings employed by the index are generally updated annually, but may be reviewed more frequently in the index provider’s discretion. The fund makes corresponding changes to its portfolio shortly after any index changes are made public. Index Constituents and Performance As of August 31, 2017, the ESG version of the index covered 6,070 investment-grade bonds (72% are actually AAA rated or equivalent) with an effective duration of 5.77 years, including US Treasuries that account for 37.1% of the fund by market value, securitized debt 30.5%, corporate debt 25.4% and government related debt 7.1%. At the time of its launch, the performance of the index was back-cast to the calendar year 2007. Based on their performance results starting in 2007 and continuing through the end of the third quarter 2017, the two indexes have achieved almost identical results with the ESG version of the index recording a cumulative 59.02% total rate of return gain versus 59.51% for the Bloomberg Barclays US Aggregate Bond Index. Refer to Chart 1.  The widest 2.51% deviation occurred in 2007 based on backcasting the index to that date, otherwise, the results achieved by the two indexes are fairly closely aligned with a 98% correlation when the first year is excluded from the calculation. Thus, the fund offers investors an opportunity to achieve market-based results while at the same time investing in bonds of firms that have been highly ranked based on their ESG management practices, their international normative standards of corporate behavior and various exclusions. At $ 18.2 Billion, Fixed Income ESG Offerings Have Gained Limited Traction To-Date The fixed income sustainable investing sphere has been slow to gather investor interest and assets under management, as viewed through the prism of mutual fund offerings as well as ETFs and ETNs. The net assets of sustainable funds, including mutual funds, ETFs and ETNs stood at $217.9 billion as of September 2017.  Of this sum, fixed income funds, comprising mutual funds and ETFs, held about $18.2 billion or 8.4% of the total invested in sustainable funds. Excepting for four sustainable fixed income index tracking ETFs, now five with the newest addition, all sustainable fixed income mutual funds are actively managed. To-date, only four sustainable ETFs have been launched and operating. Refer to Table 1.  The earliest of these, the VanEck Vectors Green Bond ETF, tracking the S&P Green Bond Index, was launched on March 3, 2017 and has attracted $10.7 million in assets. The other three funds were launched in July of this year and these have drawn in only $40.2 million, for a combined total of $50.9 million. Nuveen now adds another $40.05 million as of October 2, 2017.  These ETFs are offered at expense ratios ranging from a low of 0.12% or 12 bps to a high of 0.61% or 61 bps.  At 0.20% or 20 bps, NUBD is between 2 and 8 bps higher than the two iShares funds that track different underlying indexes. On the mutual funds side, sustainable index fixed income funds are as yet not available. [1] Previously called the Barclays Capital Aggregate Bond Index. [2] MSCI Inc. is a publicly listed company and provider of investment decision support tools, including ESG research products and services. [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The S&P 500 also registered an impressive gain of 4.48% for the quarter ended September 29th, its eighth consecutive quarterly increase, while year-to-date results were nudged up to 14.24%. Developed markets in Europe and Asia registered even stronger returns, with the MSCI EAFE Index adding 2.5% whereas emerging markets cooled in September, dropping -0.4% according to the MSCI Emerging Markets Index which nevertheless retains the year-to-date lead with an increase of 27.8%.  At the same time, U.S. bonds, measured by the Bloomberg Barclays U.S. Aggregate Bond Index, declined -0.48% in September as 10-Year U.S. Treasury yields rose to 2.33%, their highest level since July. Interest Rates Expected to Move Higher by Year-End Yields rose after the Federal Reserve Bank left rates unchanged following the central bank’s two-day meeting during the third week of the month. At the same time, the Fed indicated that it remained on track to raise short-term rates later this year and said that it would begin shrinking its portfolio of bonds next month. At a National Association for Business Economics conference in Cleveland just before month-end, Federal Reserve Chairwoman Janet Yellen reiterated the central bank’s projection for a gradual path of interest rate increases over the next few years despite inflation readings below the Fed’s 2% target for much of the past five years, based on its preferred measure. Yellen noted that “it would be imprudent to keep monetary policy on hold until inflation is back to 2%.” Yellen’s speech boosted market expectations of a rate increase at the Fed’s December meeting. Market Reacts Positively to Tax Plan Announcement Just before month-end, the first details of the Republican tax plan were announced. While still in broad outline form, the plan calls for U.S. corporate tax rates to drop to 20% from its current 27%, a tax on overseas profits, and the high end of personal income-tax rates to drop to 35% from its current 39.6%.  The proposed tax plan retains the mortgage-interest deduction but would eliminate state and local tax deductions. This is still a proposal that should not be confused with an actual bill. There is significant skepticism surrounding the bill’s passage and the hurdles for passage are high, still the market will receive a boost when and if a tax cut should come about as it would be expected to lift both corporate earnings and consumer spending. Sustainable Portfolios Turned In Positive Results and Outperformed Their Benchmarks Even as the U.S. bond market declined and yields rose during the month, positive rates of return were generated by each of the sustainable portfolios, led by the Aggressive Sustainable Portfolio (95% stocks/5% bonds) that benefited from the strong results achieved by the Vanguard FTSE Social Index Investor Shares. The fund outperformed the S&P 500 Index, gaining 2.28%.  The TIAA-CREF Social Choice Bond-Retail Shares also outperformed its benchmark, giving up 38 bps versus the Bloomberg Barclays U.S. Aggregate Bond Index that experienced a decline of 48 bps.  The Moderate Sustainable Portfolio (60% stocks/40% bonds) and the Conservative Sustainable Portfolio (20% stocks/80% bonds) produced gains of 1.55% and 0.44%, respectively.  Each of the sustainable portfolios outperformed their designated indexes. Strong results were achieved in the third quarter, with sustainable portfolio gains ranging from 2.10% to 4.64%. On a cumulative basis since October 2012, the three portfolios, Aggressive, Moderate and Conservative, are up 105.13%, 71.99% and 34.12%, respectively, comfortably in excess of their corresponding indexes that are up 90.27%, 60.98% and 27.50%.  Refer to Table 1 and Chart 1. Significant Variation in Performance Observed in September Across Sustainable Funds Within a universe of 665 sustainable funds, including mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs), the iPath Global Carbon ETN, a $1.4 million structured note, generated the best performance in September with a gain of 22.04%. The fund invested almost entirely in ICE Futures Europe ECX Futures Contracts that are designed to facilitate the trading, risk management, hedging and physical delivery of emission allowances created under the EU Emissions Trading Scheme (EU ETS).  At the other end of the range, iShares Global Clean Energy ETF suffered a decline of -1.32%. Refer to Table 2. Sustainable Funds Add $13.2 Billion in Assets The net assets of sustainable funds, including mutual funds, ETFs and ETNs, ended the third quarter with $224.3 billion in net assets, up $13.2 billion or 3.6% for the month and 6.24% for the quarter. Of the gain, $12.4 billion was sourced to mutual funds while the rest represents net flows into ETFs and ETNs. Given the 2.06% gain for the S&P 500 Index, an estimated 31% of the assets increase can be attributed to net positive cash inflows into the sector.  Refer to Chart 2. ETFs and ETNs ended the month of September with $6,397.1 million in net assets, up $352.4 million month-over-month, or 5.8%, and $735 million during the third quarter. Stock investments dominate the sector, accounting for $199.7 billion in assets at the end of September while fixed fund assets stood at $18.2 billion. Actively managed assets dominate, representing 83% of the assets allocated to sustainable funds.   [/ihc-hide-content]

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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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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] Following two months of calm, the Dow Jones Industrial Average (DJIA) in the middle of August posted its biggest decline in three months, one week after a selloff of similar scale that sent stock indexes tumbling around the world. Factors contributing to investor uneasiness included the rising tensions between the U.S. and North Korea as the verbal battle escalated between Donald Trump and North Korea’s Kim Jong Un, Trump’s deteriorating relationship with U.S. business leaders in the wake of the Charlottesville, Virginia’s violent demonstrations and his divisive remarks on the protests which served to further increase political disarray within the current administration.  Terror attacks in Spain could also have figured in the decline and more generally, concerns about lifting the debt ceiling by the end of September along with a loss of confidence that President Trump can accomplish his agenda of tax cuts and infrastructure investing to stimulate economic growth. Still, stock prices recovered at the end of the month. The Conference Board reported that its index of consumer confidence rose to 122.9 in August from a revised 120 in July. The index in March reached 124.9, its highest level since December 2000.  The index has been buoyed by labor-market strength and stock prices. Economic strength was another contributing factor.  The Commerce Department reported that the U.S. economy had expanded at an annual rate of 3% in the second quarter of the year, better than initial estimates of 2.6% for the quarter and representing a substantial acceleration over the first quarter’s 1.2% pace.  While Hurricane Harvey introduced some uncertainties, most economists are expecting the economy to expand at a rate of roughly 3% in the second half of the year—a pace strong enough to keep job growth and wages on track for further gains while keeping the threat of inflation modest for now. In Europe, economic momentum improved, with the euro area posting second-quarter GDP growth of 2.2%--the highest level since 2011. The MSCI Europe ex-UK Index was penalized by the strong euro and closed with a negative return of -0.4%. Emerging markets delivered a return of 2.1% thanks to a weak dollar and positive fundamentals in China. Sustainable Portfolios Performance Summary Positive rates of return were generated by each of the sustainable portfolios, led by the Conservative Sustainable Portfolio (80% bonds/20% stocks) that benefited from the 0.97% gain produced by TIAA-CREF Social Choice Bond Fund-Retail on the back of the strong U.S. bond market performance that registered a gain of 0.90%. The S&P 500 Index trailed the U.S. bond market with a slight total return gain of 0.31% that was exceeded by the 0.44% increase delivered by the Vanguard FTSE Social Index Investor Shares. The Moderate Sustainable Portfolio (60% stocks/40% bonds) and the Aggressive Sustainable Portfolio (95% stocks/5% bonds) produced gains of 0.58% and 0.46%, respectively.  Each of the sustainable portfolios outperformed their designated indexes. On a cumulative basis since October 2012, the three portfolios, Aggressive, Moderate and Conservative, are up 100.71%, 69.4% and 33.5%, respectively, comfortably in excess of their corresponding indexes that are up 86.6%, 58.8% and 27.1%. Monthly Sustainable Fund Flows The net assets of sustainable funds, including mutual funds, ETFs and ETNs, remained unchanged during the month of August. Net assets ended the month again at $216.6 versus a prior month-over-month increase of 3%.  The same can be said for the mutual funds versus ETF and ETN component.  These ended the month at $210.5 billion and $6.0 billion respectively. At the end of August, fixed income funds combined, including taxable, tax-exempt and money market funds, held about $18.3 billion in net assets as compared to $17.9 while all other funds, consisting largely of equity funds, stood at $198.3 billion. Actively managed funds account for $202.3 billion or 93.4% of sustainable assets under management across mutual funds, ETFs and ETNs. [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] The S&P 500 earnings season came to end and was characterized by robust earnings growth across all sectors. Revenues generally beat analyst estimates and earnings per share surprised even more, with over three-quarters of US companies beating revenue estimates. Earnings growth was seen in almost all sectors, indicating a broad-based higher earnings trend in the US market. The unemployment rate fell in the May labor market release, down to 4.4% which was particularly good news after the dismal payrolls report for the previous month. 211,000 non-farm jobs were added in April vs. the 185,000 jobs expected. Bonds rallied as well, with global investment-grade bonds returning close to 1.7% and euro and U.S. Treasuries both returning 0.5%. In the U.S. the Bloomberg Barclays U.S. Aggregate Bond Index replicated the previous month’s gain of 0.77%. Moody's downgraded China's sovereign credit rating and changed its outlook from negative to stable. Local market reaction in equities, fixed income and currencies was muted, but the downgrade does reflect the risk associated with China's rapid accumulation of corporate debt and systemic challenges from the shadow banking system. In May, China signed a trade deal with the US, reversing some of the anti-trade rhetoric from the US, in what was seen as a positive stepping stone to US—China relations. The items covered in the deal span beef and poultry to financial ratings and credit services. The MSCI Asia ex-Japan gained 4% in May. Sustainable Portfolios Performance Summary The Aggressive Sustainable Portfolio (95% stocks/5% bonds) gained 1.22% during the month of May, benefiting from the 1.23% increase produced by the Vanguard FTSE Social Index Fund-Investor Shares. Unlike the previous four months, however, the fund did not outperform the S&P 500 Index. This was also the case for the TIAA-CREF Social Choice Bond Fund-Retail which came in at 0.76% or just one basis point (0.01%) below the Bloomberg Barclays U.S. Aggregate Bond Index.  Still, the Moderate and Conservative Portfolios experienced gains of 1.10% and 0.90%, respectively. On a cumulative basis, the three portfolios are up 93.79%, 64.42% and 30.85%, respectively, continuing to perform well ahead of their corresponding indexes which delivered increases of 81.21%, 54.95% and 24.94%, respectively.                                                       Monthly Sustainable Fund Flows Sustainable funds, including mutual funds, ETFs and ETNs, ended the month of May at about $209.8 billion. This is an increase of almost $3.4 billion relative to the month of April, or 1.6%. ETFs and ETNs stood at $5.5 billion as compared to $204.4 billion for mutual funds, or 97.4% of total sustainable assets. Mutual funds accounted for 92% of the gain in net assets, driven almost entirely by an increase of $3.1 billion in the value of equity mutual funds that was largely aided by market appreciation. Fixed income assets, consisting of taxable municipal bond funds along with money market mutual funds, ended the month of April largely unchanged at $17.5 billion in assets under management largely in line with the prior month. [/ihc-hide-content]

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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. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ] Registering a decline of 0.05%, the US fixed income market took a pause in a month when the Federal Reserve announced its third interest rate rise since the 2008 financial crisis and the second in three months, taking the Federal Funds base rate from 0.75% to 1% in an effort to head off inflation. The central bank also confirmed that it is prepared to increase rates several times this year to keep a lid on inflation as it rises above its 2% target level. Performance Summary The Aggressive Sustainable Portfolio (95% stocks/5% bonds) gained 0.27% during the month of March. Although the total return was modest, the Portfolio’s performance was boosted by the Vanguard FTSE Social Index results that exceeded the S&P 500 Index.  The Moderate and Conservative Portfolios also experienced gains, edging up 0.22% and 0.13%, respectively.  The TIAA-CREF Social Choice Bond Fund-Retail also outperformed its benchmark which produced a small negative return of -0.05% for the month. The strong stock market performance during the first three months of the year, when the S&P 500 gained 6.1%, benefited the more aggressively configured sustainable portfolios. The Aggressive Sustainable Portfolio added almost 7% while the moderate and conservative portfolios were up 4.52% and 2.9%, respectively. On a cumulative basis, the three portfolios are up 89.4%, 61.0% and 28.6%, respectively as compared to their corresponding indexes which have recorded lower gains  of 76.9%, 51.6% and 22.7%.       Monthly Sustainable Fund Flows Sustainable funds, including mutual funds, ETFs and ETNs, added just $590 million to end the month with $203.8 billion in assets under management, or an increase of 0.6%. ETFs stood at $5.1, up slightly from almost $5.0 billion at the end of February while mutual funds closed the month with assets in the amount of $198.7 billion.  Almost the entire gain during the month accrued to the benefit of mutual funds. Equity funds accounted for $186.7 billion in assets under management, or 91.6%, while fixed income funds stood at $17.1 billion.           [/ihc-hide-content]

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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.  AssessmentLow Conviction SynopsisThe firm, based in Paris, specializes in [ihc-hide-content ihc_mb_type="show" ihc_mb_who="3,4,5" ihc_mb_template="4" ]responsible investing on a global scale, which includes environmental, social and governance analysis (ESG).  It has $6.8 billion in assets under management (as of 12/31/2016) and $44 billion in voting and engagement.  The firm also has been managing a green bond fund offered in Europe since January 2016.  As reported by Mirova, the firm retains a team of about 60 multidisciplinary experts include specialists in thematic investment management, engineers, financial and environmental, social and governance analysts, project financing specialists and experts in solidarity finance.  So the absence of a track record for this new fund can be offset by the firm’s experience in this sphere.  At the same time, the fund’s 95 bps expense ratio (which declines to 65 bps for Class N shareholders subject to a minimum investment of $1.0 million and 70 bps for Class Y shares subject to a $100,000 initial investment, except certain retirement plans, IRAs, Wrap fee programs and clients of RIAs) is below median but falls into the lower tier or second quartile but is richly priced for retail investors who are also subject to a maximum 4.50% sales charge1.Mirova Global Green Bond Fund - ESG AnalysisThe Mirova Global Green Bond Fund aims to provide total return, through a combination of capital appreciation and current income, by investing in green bonds. The fund is dedicated to financing environmental transition projects while potentially benefitting investors with global diversification and sustainable value.The fund will invest at least 80% of its net assets in green bonds which are the same as all other fixed income instruments, except that the proceeds are used to finance projects intended to achieve a positive environmental impact. The fund primarily invests in fixed-income securities issued by companies, banks, supranational entities, development banks, agencies, regions and governments. In deciding which securities to buy and sell, Mirova selects securities based on their financial valuation profile and an analysis of the global environmental, social and governance impact of the issuer or the projects funded with the proceeds from the securities. Following the evaluation of a security, the portfolio managers value the security based, among other factors, on what they believe is a fair spread for the issue relative to comparable government securities, as well as historical and expected default and recovery rates. The portfolio managers will re-evaluate and possibly sell a security if there is a deterioration of its ESG quality and/or financial rating, among other reasons.Green bonds are usually issued to finance specific projects intended to generate an environmental benefit while offering a potential market return in line with conventionally fixed income securities. Beyond fundamental security analysis, Mirova independently analyzes each green bond it selects on the basis of its commitments to the use of proceeds, an analysis of the general practices of the issuer and of the management of the environmental and social risks during the life cycle of the projects, and reporting and disclosure practices.  The fund invests in securities of issuers located in no fewer than three countries, which may include the U.S. Under normal circumstances, the Fund will invest at least 40% of its assets in securities of issuers located outside the U.S. and the Fund may invest up to 20% of its assets in securities of issuers located in emerging markets.The fund may invest up to 20% of its assets, at the time of purchase, in securities rated below investment grade or, if unrated, securities determined by Mirova to be of comparable quality. The fund may invest in bonds of any maturity and expects that under normal circumstances the modified duration of its portfolio will range between 0 and 10. This flexibility is intended to allow the portfolio managers to reposition the fund to take advantage of significant interest rate movements. Performance is expected to derive primarily from security selection and duration is not expected to be a major source of excess return relative to the benchmark.Alternative Mutual Fund OfferingsAt this point, investors interested in a dedicated green bond fund have access to a limited number of options.  Beyond the just launched Mirova Global Green Bond Fund, only two funds that are invested in at least around 10% of net assets in green bonds are currently available in the market. While the TIAA-CREFF Social Choice Bond Fund offers the best management/price combination, this fund is not a dedicated green bond fund and only about 9.5% of the fund’s total assets are currently invested in green bonds.Green Bond Mutual FundsAdditional managed fund options are likely in the future.  For example, New York investment advisory firm Van Eck Associates Corporation revealed recently that it is planning to launch a green bond ETF designed to replicate the performance of a green bond index.  The announcement was in the form of a SEC registration statement filed on 10 November 2016.  The fund has not been listed for trading as of the date of this writing.Bottom LineWhile the management company brings a solid track record in managing ESG assets generally and green bonds in particular, the fund’s moderate 95 bps expense ratio charged to retail investors via the Class A shares, which falls outside the lowest to-lower range applicable to intermediate corporate funds, and the application of the maximum sales charge of 4.50% makes this fund an expensive option for retail investors.  For now at least, retail investors may wish to consider the TIAA-CREFF Social Choice Bond Fund or direct purchases of highly rated taxable or tax-exempt green bonds.  That said, the Mirova fund is a more attractive option for institutional investors not subject to a maximum sales charge[/ihc-hide-content]

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Research

Research and analysis to keep sustainable investors up to-date on a broad range of topics that include trends and developments in sustainable investing and sustainable finance, regulatory updates, performance results and considerations, investing through index funds and actively managed portfolios, asset allocation updates, expenses, ESG ratings and data, company and product news, green, social and sustainable bonds, green bond funds as well as reporting and disclosure practices, to name just a few.

A continuously updated Funds Directory is also available to investors.  This is intended to become a comprehensive listing of sustainable mutual funds, ETFs and other investment products along with a description of their sustainable investing approaches as set out in fund prospectuses and related regulatory filings.

Getting started

Many questions have surfaced in recent years regarding sustainable and ESG investing.  Here, investors and financial intermediaries will find materials that describe the various approaches to sustainable investing and their implementation.  While sustainable investing approaches vary and they have thus far defied universally accepted definitions, many practitioners agree that they fall into the following broad categories:  Values-based investing, investing via exclusions, impact investing, thematic investments and ESG integration.  In conjunction with each of these approaches, investors may also adopt various issuer engagement procedures and proxy voting practices.  That said, sustainable investing approaches will continue to evolve.

In addition to periodic updates regarding sustainable investing and how this form of investing is evolving, investors and financial intermediaries interested in implementing a sustainable investing approach will also find source materials that cover basic investing themes as well as asset allocation tactics.

Inesting 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. 

Independent source for sustainable investment management company research, analysis, opinions and sustainable fund disclosure assessments