Russell Capital SRI Presentation - Institutional

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DAWN OF A NEWDAWN OF A NEWERA IN INVESTINGERA IN INVESTING

Traditional Traditional InvestingInvesting

Sustainable Sustainable InvestingInvesting

DISCLOSUREInvestment Advisory Services offered through Russell Capital Management LLC. an SEC registered corporation. Securities offered through Comprehensive Asset Management and Servicing, Inc. Member FINRA/SIPC/MSRB. RCM and CAMAS are not related entities.

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Creating and Preserving Wealth

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JUSTIN SAUTTER

Senior Partner, ESG

Portfolio Team Leader

• Justin Sautter is a Certified Private Wealth Advisor and senior partner at Russell Capital Management.

• Prior to Russell Capital, Justin worked for Price Waterhouse and Wells Fargo Securities in both San Francisco and New York.

• Justin graduated from Colgate University with a double major in Economics and International Relations.

• Within the local community Justin is active on the Sayre School Board, The Kentucky Horse Park Foundation, The Stable of Memories, and the Woodford Hounds (currently as Joint Master of Foxhounds). He is a past Board member of the Iroquois Hunt Club. Justin lives in Lexington with his wife, Libby, and their two daughters.

SUSTAINABLE INVESTING TRENDS


76% INCREASE IN SUSTAINABLE INVESTING STRATEGIES FROM 2012 TO 2014Total U.S.-domiciled assets under management using sustainable strategies expanded from $3.71 trillion at the start of 2012 to $6.57 trillion at the start of 2014

76%

8 IN 10MILLENIALS

7 IN 10WOMEN

UNDER-REALIZED OPPORTUNITYRoughly 8 in 10 millennial investors and 7 in 10 women are interested in sustainable investing.

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CONVENTIAL WISDOM

We disagree, times have changed, investors have

changed.

Proliferation of

information in an

internet age

Sustainable investing limits your options and is bad investing.

Globalization of trade,

sourcing & manufacturin

gIn many cases, investor attitudes are changing to address new trends

Is my manager using ALL available information to select investments?

Does my portfolio align with my values?

THE BUSINESS CASE FOR SUSTAINABLE INVESTING• By 2050, pop. increase to 9 billion people – global demand for food will increase

by 35%, for water 40%. Companies that focus on these challenges now will be best positioned for long term growth.

• Supply chain disruptions due to environmental/climate issues

• Study of 267 companies found those with better environmental risk management had less volatility and frequently a lower cost of capital. (Cheng/Serafeim)

• Stocks of well governed firms perform better than stocks of poorly governed firms (Oxford University and Arabesque Partners)

• Business practices like unsafe conditions, child labor, and undocumented employees can lead to brand damage.

• Incorporating financial information with material non-financial information provides a more complete view of risk and opportunities

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THE SOCIAL CASE FOR SUSTAINABLE INVESTING• Alignment of values with investments: Owning shares in a company gives

investors a channel through which to raise environmental, social and corporate governance issues

• Sustainable investors have filed shareholder resolutions on the following issues:• Improve corporate disclosure

– Ex: improve climate risk disclosure and ask companies to adopts goals to reduce energy use• Oversight of political contributions and activities• Equal employment opportunity

– Ex: promote gender diversity on boards of directors; address poor labor and human rights conditions

• Climate change– Ex: Implement sustainable forestry practices

• Human rights– Ex: Sustainable investors joined with a civil society organization to end human rights abuses

in Burma and Sudan• Sustainability reporting 7


CHALLENGES REMAIN• It’s an emerging space – most investment mangers do not

understand it.

• Plethora of products – over 400 sustainable mutual funds and growing!

• A lot of branches in the tree – intersections of business and social case are complicated, diverse, continuously evolving, and sometimes contradictory.• Ongoing due diligence is a must

• Single manager risk – issue weightings and selection methodology

• Single issue risk – Ex: CRBN ETF, buy solar companies at $40 oil?

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THE SOLUTION: RUSSELL CAPITAL SOCIAL IMPACT PORTFOLIO

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• Professionally managed – continuous due diligence and interaction with subadvisors

• Performance benchmarked – benchmarked to the S&P 500 and Barclays Aggregate Bond Index

• Managed as a separate account – non-pooled

• Purpose and performance – aligns investment results with investor values

• Eliminates risk – stemming from single stock, single issue, and single manager selections

• Customizable – allows investors to emphasize several core issues such as the environment, women’s empowerment, and international socially responsible investing


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WHAT IS ESG?

SOCIAL

ENVIRONMENTAL GOVERNANCE


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A BRIEF HISTORY

1700S

Methodists and Quakers “firmly oppose” the slave trade; employ negative screens for alcohol, tobacco, and gaming

Dawn of shareholder activism;Vietnam War

Anti-apartheid movement, Chernobyl and Exxon catastrophes galvanize investors and research firms to begin collecting and reporting on environmental concerns

U.S. Forum for Sustainable Investments is founded (SIF) (www.ussif.org)

First conference on SRI is held

Carbon Disclosure Project (CDP) is formed

UN Principles for Responsible Investing (PRI) initiative is formed.*1700s 1960s 1980s 1984 1990s 2000s 2006 2010s 2016

SRI, ESG, Sustainable Investing go “mainstream”

$6.7 trillion in sustainable and responsible strategies

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ENVIRONMENTAL – KEY ISSUES

SOCIAL


Focus on companies’ ability to manage operational and reputational risks; reduce operating costs and volatility associated with energy and other natural resources; and take advantage of business opportunities created by the shift towards a more sustainable economy.

Climate Change

Emissions & Waste

Resource Efficiency


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SOCIAL – KEY ISSUES

SOCIAL


Focus on companies’ ability to create value through a productive workforce, high-quality products and positive interactions with communities.

Diversity, human capital & safety

Product integrity & supply chain management

Community impact


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CORPORATE GOVERNANCE – KEY ISSUES

SOCIAL

GOVERNANCE

Focus on companies’ ability to align the interests of management with those of shareholders over the long term.

Board & executive diversity

Corporate structure, accounting & transparency

Executive compensation


PUTTING ESG FACTORS TO WORK

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RUSSELL CAPITAL RUSSELL CAPITAL SOCIAL IMPACT PORTFOLIOSOCIAL IMPACT PORTFOLIO

PORTFOLIO SCREENING PROCESS

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The investments in our Social Impact Portfolio are rigorously and continuously screened through a multi-step process to help ensure the highest level of ESG adherence and investment quality.

ESG

FUND

CRE

ATIO

N

Universe of domestic and international public

companies

Screened for investibility using traditional methodologies

SCREEN 1

SCREEN 2Remaining companies screened against ESG

metrics

ESG mutual fund

RCM

SOC

IAL

IMPA

CT P

ORTF

OLIO

CR

EATI

ON

ESG mutual funds

SCREEN 1Screened for investibility

using traditional methodologies

SCREEN 2Further ESG screening to ensure high standards of

ESG adherence

SCREEN 3Russell Capital screens ESG funds for potential

role in portfolio

SOCIAL IMPACT PORTFOLIO

RUSSELL CAPITAL SOCIAL IMPACT PORTFOLIO

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• Incorporates environmental, social and governance factors to marry your values and initiatives with financial results

• Composed of three main parts:

1. Core of ESG Bonds

2. Core of ESG Stocks

3. Emphasis Layers: optional and allows you to “tilt” your customized portfolio towards a certain initiative, including women’s empowerment, community investment, international impact, and the environment

BONDS STOCKS

CORE OF ESG SCREENED BONDS AND STOCKS

OPTIONAL “EMPHASIS”

EQUITYLAYERS

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SUPPORT OF DIVERSE INITIATIVES

SOCIAL

GOVERNANCE

Our Stock and Bond Cores can help you support the following initiatives:


Animal Welfare

The Environment

Workplace Safety & Diversity

Public Health

Women’s Empowerment

Social Justice

International Impact

Community Investment

SOCIAL IMPACT PORTFOLIO – CORE OF ESG STOCKS

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• Seeks to invest in funds with proven track record of strict ESG adherence

• Funds typically invest in companies that provide positive leadership in their sector, while excluding those that do not meet the rigorous ESG standards

• Generally excludes companies with significant involvement in:• Manufacture of alcohol products• Manufacture of tobacco products• Direct involvement with gambling• Manufacture of weapons

STOCKS

SOCIAL IMPACT PORTFOLIO – CORE OF ESG STOCKS

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STOCKS

SOCIAL IMPACT PORTFOLIO – CORE OF ESG BONDS

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• Seeks to invest in companies with positive performance on ESG criteria

• Seeks favorable long-term return through income and capital appreciation

• Targets a certain percentage of its assets for proactive social investments, like community development or micro-lending

STOCSBONDS

SOCIAL IMPACT PORTFOLIO – CORE OF ESG BONDS

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STOCKS

HYPOTHETICAL 60% CORE ESG STOCKS/40% CORE ESG BONDS

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STOCKS

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EMPHASIS LAYERS

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EMPHASIS LAYERS – INTERNATIONAL IMPACT

International Impact (Stocks)

• Allows investors with a global perspective to invest overseas while maintaining socially responsible investing principles

• Invests in companies in both developed and emerging markets

• More than 98% of investments in this layer are non-U.S.

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EMPHASIS LAYERS – INTERNATIONAL IMPACT

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EMPHASIS LAYERS – WOMEN’S EMPOWERMENT

• Helps target your portfolio to invest in companies with high level of gender diversity and women in leadership roles from board level advisors to the executive ranks

• Seeks companies who have policies and programs aimed at advancing women’s leadership

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EMPHASIS LAYERS – WOMEN’S EMPOWERMENT

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EMPHASIS LAYERS – ENVIRONMENT

• Uses a combination of negative, positive and best-in-class screens to evaluate companies with significant involvement in fossil fuels, nuclear power and GMOs (genetically modified organisms).

• Seeks to invest in companies with high resource efficiency and those that actively mitigate depletion of natural capital.

Environment (Stocks)

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EMPHASIS LAYERS – ENVIRONMENT

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EMPHASIS LAYERS – COMMUNITY DEVELOPMENT

Community Investment (Bonds)

• Optional bond layer• Invests in securities that are qualified under the

Community Reinvestment Act of 1977• Community Investments focus on single, multi-

family, and economic development loans

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EMPHASIS LAYERS – COMMUNITY DEVELOPMENT

EXAMPLE

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• Alex and Taylor Whalen are 55 years old and have 10 years until retirement.

• After meeting with their Russell Capital advisor they have decided to invest their assets in a moderate-high risk Social Impact Portfolio. They also choose to add Emphasis Layers for The Environment and Women’s Empowerment.• 70% ESG Stocks = 50% Core

Stocks, 20% Emphasis Stocks• 30% ESG Bonds = 30% Core

Bonds

50% Core ESG Stocks

30% CoreESG Bonds

10%10%

SOCIAL IMPACT PORTFOLIO: 70/30

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HYPOTHETICAL RETURN – ALEX AND TAYLOR WHALEN

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50% Core Stocks

30% CoreBonds

10%

10%

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SUMMARY• Sustainable investing is an investment discipline that considers

Environmental, Social and Corporate Governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.

• SRI – Sustainable, Responsible, Impact Investing

• ESG – Environmental, Social, Governance

• Employing SRI requires constant analysis of both fundamental and ESG factors.

• The absence of thorough and ongoing research can be perilous to your investments returns.

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• Founded in 1991 as an independent, Securities and Exchange Commission (SEC) registered investment advisory (RIA) firm.

• Total of 7 investment advisors, including 3 partners — Jack Russell, David Dowell and Justin Sautter

• Manage almost $500,000,000 and work with clients in 38 states and the District of Columbia

• Serve as the trusted advisor and financial manager for working and retired professionals, multi-generational families, companies and charitable foundation. Our job is to create and preserve wealth.

• Areas of particular expertise include: Trust & Estate Planning, High-Net Worth Families, Charitable Foundations, Life Events, Retirement, 403b/401k Participants, Socially Responsible Investing

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DAWN OF A NEWDAWN OF A NEWERA IN INVESTINGERA IN INVESTING

Traditional Traditional InvestingInvesting

Sustainable Sustainable InvestingInvesting

SOURCES AND RESOURCES• http://www.unpri.org/about-pri/about-pri/• http://www.wsj.com/articles/sustainable-investing-goes-mainstream-1452482737• “The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies

find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time.”• 2015, ESG and Financial Performance: Aggregated Evidence From More Than 2,000 Empirical Studies,

Deutsche Asset & Wealth Management and Hamburg University,

• “The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time.”• 2015 , From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial

Outperformance , Oxford University and Arabesque Partners

• "analysis of leading SRI equity indexes over the long-term found no statistical difference in returns compared to broad market benchmarks, suggesting the absence of any systematic performance penalty”• 2014, Socially Responsible Investing: Delivering Competitive Performance, TIAA-CREF Asset

Management • Coincides with launch of ESG investment products by mainstream financial firms like BlackRock and Goldman Sachs.

At the same time, research from Morgan Stanley and others helped dispel concerns that investors have to sacrifice returns to do good. (http://www.wsj.com/articles/sustainable-investing-goes-mainstream-1452482737) https://www.morganstanley.com/sustainableinvesting/pdf/sustainable-reality.pdf

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http://www.unpri.org/about-pri/about-pri/

http://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917

• UN Principles for Responsible Investing (PRI) was formed in early 2005 by UN secretary-general Kofi Annan• As of Dec. 2015, over 1300 signatories representing $59 trillion in assets under management have signed their

commitment to the PRI• Principles are:

• 1. We will incorporate ESG issues into investment analysis and decision-making processes.• 2. We will be active owners and incorporate ESG issues into our ownership policies and practices.• 3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.• 4. We will promote acceptance and implementation of the Principles within the investment industry.• 5. We will work together to enhance our effectiveness in implementing the Principles.• 6. We will each report on our activities and progress towards implementing the Principles .

• The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995 and updated again in August 2005.

• The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated by the appropriate Federal financial supervisory agency periodically. Members of the public may submit comments on a bank’s performance. Comments will be taken into consideration during the next CRA examination. A bank's CRA performance record is taken into account in considering an institution's application for deposit facilities.

• Information in this section is related to state member banks that are examined by the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).

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• https://www.theclimategroup.org/news/using-better-energy-better-global-companies-switching-renewable-power-and-doubling-energy

• Source: http://www.federalreserve.gov/communitydev/cra_about.htm• https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability

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