One Beacon Street | Boston, Massachusetts | | Western Washington University May 2016 Tim Smith, Senior Vice President Director of ESG Shareowner Engagement Walden Asset Management

2 A NEW BREED OF INVESTORS HAS EMERGED OVER THE LAST DECADE, CREATING A NEW REALITY AND NEW EXPECTATIONS FOR BOARDS AND MANAGEMENT They describe themselves as Sustainable and Responsible Impact Investors or ESG investors. They include pension funds, mutual funds, investment managers, trade union funds, foundations, religious investors and increasingly from mainstream Wall Street. Why do investors and what they do matter to the Western Washington University community – because they “own” the companies in our country – and they could be a force to push a company to make money regardless of the case to the environment or employees or they could press companies to operate responsibly and ethically. And on campus how our University manages its funds is important to many students concerned about issues like climate change. These investors understand themselves as “shareowners” and long term investors. Many of them are pension funds who are "universal investors,” investing in the whole market. Obviously they seek financial returns from their investments but these investors also integrate environmental, social and governance (ESG) factors into their investment analysis of and engagement with companies. Why?

Because they believe ESG factors affect shareholder value and many of them just believe it is the right thing to do. While motives and philosophy of different investors vary (TIAA, where many college professors pensions are held, compared to United Methodist Pension Board) they often wind up in the same place. Globally 1,300 plus investors, with AUM totaling approximately $59 trillion, are members of PRI and integrate ESG into the investment and corporate engagement process. They believe ESG issues can and do have a financial impact on the bottom line. Therefore, they believe it is part of their fiduciary duty to address and promote corporate leadership on ESG. This now includes Black Rock, State Street (SSga), TIAA, Morgan Stanley, JPMorgan Chase and mainstream players. These are some of the largest investment entities in the world. They have tremendous power. Will it be channeled for good or to continue the status quo. It also includes many pension funds around the globe. 3

4 Investors also actively support the call of CDP (Carbon Disclosure Project) for companies to monitor and report their GHG emissions affecting the climate and plans to reduce them. Globally, investors with over $95 Trillion in assets around the world support CDP. To get our heads around this, this could buy 240 Microsofts and 297 Amazons. The U.S. Stock Market is capitalized at $20 Trillion and our GDP was $18.1 Trillion in 2015, so $95 Trillion is massively important. And many foundations are embracing the term “Mission Related Investing” and “Impact Investing” where they choose investments earmarked to have a positive impact in alleviating poverty or creating social and economic development.

In addition, many of these ESG investors are active shareholders reaching out to engage companies by voting proxies, writing letters, engaging in dialogue with management and / or Boards of companies, and sponsoring shareholder resolutions for a vote at stockholder meetings. Hundreds of these investors are actively involved in filing resolutions on ESG issues (e.g. pension funds like CalPERS and CalSTRS, State of Connecticut, City of New York and State of New York Pension Funds, Walden Asset Management, Nathan Cummings Foundation, Presbyterian Church, Mercy Investment Services, AFSCME, AFL-CIO etc.) Why are these investors important – represents the pension funds of teachers in California and New York or Methodist ministers or employees of the State of Washington. 5

6 These investors seek expanded reporting and transparency as well as specific changes in company policies and practices saw more than 1,200 shareholder proposals on dozens of issues from executive compensation to climate change, from annual election of directors to international Codes of Conduct, from disclosure of political spending to separation of the Chair and CEO. A newer issue is “Proxy Access” allowing investors to nominate Directors. Votes on resolutions seeking declassification of the Board regularly received votes over 75%. “Proxy Access” resolutions regularly receive over 50% voting results. Votes on issues like lobbying / political spending disclosure, climate change, sustainability reporting and hydraulic fracturing practices are rising to the 30%-45% level.

7 Some resolutions will be addressed quietly and constructively in private dialogues, while others will be hotly debated public challenges. Boards and management can creatively use communications with stakeholders to identify trends, potential potholes for the company, build positive relations with investors, and head off public conflicts on ESG issues. Meanwhile, vigorous opposition to such shareholder engagement is mounting – The U.S. Chamber of Commerce called for reforms in the shareholder resolution process to make filing resolutions more difficult and insulate companies from pressure.

But sustainability issues are increasingly being championed by companies as good for business. Approximately 75% of S&P 500 companies publish “Sustainability Reports” describing their policies and programs on diversity, supply chains, the environment, etc. Many CEOs in their letters in published reports describe how leadership in corporate responsibility is good for long term shareholder value. Companies like Intel, Colgate Palmolive, Campbell's Soup, IBM, P & G, Unilever and Kimberly Clark emphasize this point. Most companies provide a meaningful analysis of what they do to address sustainability issues though obviously some use it for “greenwashing” to protect their reputation. 8

Why Do Companies Care About Sustainability The business case for a company being a leader in sustainability reporting and corporate responsibility is compelling it includes Builds loyalty and pride with employees and attracts quality applicants; Consumers care as do an active cross-section of investors; Necessary to keep up with the “competition”; Major companies like Wal-Mart require companies to be transparent and take a lead on issues like climate and GHG emissions, reduce excessive packaging, etc.; so there is a distinct ripple effect in the supply chain; Potential reputational risk or positive impact on the company’s brand; Less chances for lawsuits and harm to the brand; The “integrity and values” of some companies demand it. 9

Hot Button Issues Climate Change Political Spending and Lobbying Disclosure Governance Reforms – annual election of Directors, Majority vote, Access to the Proxy Board Diversity Supply Chain Sustainability Reporting Palm Oil Let’s zero in on one vitally important case in point – Climate and Energy Policy and Resolutions for

As many in this room know well, climate change is an urgent global crisis requiring a huge transformation by individuals, companies and governments. Our goal is to keep temperatures increases below 2 degrees C, a path we are well on the way to surpass. The results will be global negatively affects environment, health, military, etc. During the creating of COP21 in Paris, work on climate policy / lobbying became more visible than ever. Many coalitions e.g. Ceres, ICCR, CDP and PRI have expanded their a focus on companies’ roles in influencing (positively or negatively) climate policy. This 2015 – 2016 proxy season political spending and lobbying resolutions were one of the visible and frequently filed resolutions. Many votes ticked upward. And in virtually all of the lobbying disclosure resolutions (which went to over 50 companies), the issue of lobbying on climate through Trade Associations and ALEC, were part of the rationale for the resolution. 11

Approximately 150 companies now disclose political expenditures as listed on Center for Political Accountability’s website. A number of new companies agreed this season to expand their lobbying disclosure. But many companies balk at disclosure of trade association payment. PRI has invited global investors to sign a public statement on climate and public policy. Walden Asset Management, Calvert Investments and Domini Social Investments coordinated an open letter to companies on the U.S. Chamber of Commerce Board or prominent members challenging the Chamber’s attacks on the EPA and its Clean Power Plan. CDP continues to ask respondents to their climate survey to disclose their climate lobbying activities. In addition, for many companies with a positive climate position “misalignment” with trade associations who lobbied against climate regulations is raised. 12

13 A Variety of Strategies Used by ESG Investors Include 1.Screening – positive and negative – in the creation of a portfolio e.g. divestment of coal or fossil fuel stock. Seeking investments in companies with a positive impact e.g. renewable energy 2. Community Development Investing / Impact Investing 3.Shareholder Advocacy  Dialogue  Meetings with companies with groups of investors  Open Letter  Shareholder Resolutions  Solicitation of votes  Highlighting examples of positive corporate leadership 4. Public Policy Advocacy – affecting laws and regulations

14 Does Advocacy as Investors Make a Difference? It depends. Sometimes companies can easily ignore investor appeals, just like they can ignore consumers or social media. But often Yes – Hundreds of companies do listen to and engage their owners becoming more transparent and changing policies. Over the last 45 years there has been a clear and demonstrable positive impact on company thinking and behavior. These examples help tell the story.