Investment Committee - MSCI ESG Report University of Maine System MSCI ESG Reporting March 9, 2017 Kelly A. Regan, Senior Consultant Jay E. Roney, Partner 327
Investment Committee - MSCI ESG Report Summary 328
Investment Committee - MSCI ESG Report Introduction Goals for today’s meeting • Update the Investment Committee on the MIP’s Environmental, Social and Governance (ESG) – progress Provide a summary of MSCI’s ESG report – The University of Maine System has completed a number of items with regards to • impact investing Divested from coal securities in all separate account mandates in 2015 – Continually monitors fossil fuel exposure – Approved an ESG policy in September 2016 – Contracted with MSCI to complete an annual report that will measure the MIP’s equity and – fixed income holdings with regards to ESG factors Also includes information around carbon exposure • Some information about the MIP portfolio is below: • The estimated exposure to fossil fuels in the MIP is 2.9% as of October 31, 2016 – The System is working towards a plan to improve the ESG factors in the portfolio – This will not be immediate and will take time • As part of the ESG plan, the System will be considering managers that focus on ESG when – reviewing new managers for the MIP Currently, there are 3 managers in the MIP that utilize ESG in their process • The following slides provide a summary of the MSCI ESG Report • Report Definitions: – Client Benchmark: 70% MSCI ACWI index/30% Barclays Capital Aggregate index • Client ESG Benchmark: 70% MSCI ACWI ESG index/30% Barclays Capital Aggregate ESG index • • UMS Consolidated Investment Pool: Manager holdings from all equity, fixed income, GAA and long/short equity hedge fund mandates (~90% of the total MIP Portfolio) 329
Investment Committee - MSCI ESG Report MIP Portfolio Summary The overall ESG of the MIP Portfolio is 5.14 • which is average and falls below both benchmarks This will be our starting point to measure • improvement going forward When scored on individual factors, the • environmental score is the highest in absolute terms and relative terms The majority of the MIP’s holdings are covered by MSCI Research • (~95%) Scores are based on a scale from 0-10 with 10 being the best • 330
Investment Committee - MSCI ESG Report Environmental Scores Climate change factors make up 7% of the MIP • portfolio Most have high ratings (>5), but fall short of the • benchmarks These are some of the highest ratings in the overall • portfolio (i.e. energy efficiency and carbon emissions) Most key issues have a green score (>5) • 331
Investment Committee - MSCI ESG Report Social Scores Social Factors account for the • Most key issues have a red score (<5), but so • highest weighting in the MIP do benchmarks portfolio 332
Investment Committee - MSCI ESG Report Governance Scores Corporate Governance is the highest weighting • in the MIP Portfolio and scores in-line with both benchmarks 333
Investment Committee - MSCI ESG Report Controversy and Business Involvement Exposure Very low weights in the MIP • Portfolio to controversial companies Animal Welfare most common business involvement and makes up 9% of • the MIP portfolio Defined as: Companies that conduct animal testing for non-pharmaceutical • products including cosmetic, personal care, and household cleaning products, as well as industrial and chemical products. 334
Investment Committee - MSCI ESG Report Full Report 335
Investment Committee - MSCI ESG Report MSCI ESG Portfolio Analytics June 30, 2016 ESG Portfolio Analytics Client Name University of Maine System Fund Name UMS Consolidated Investment Pool Benchmarked ESG Index Client ESG Benchmark Benchmarked Market Index Client Benchmark University of Maine System Prepared for: Portfolio Name: UMS Consolidated Investment Pool Benchmarked ESG Index: Client ESG Benchmark Benchmarked Market Index: Client Benchmark June 30, 2016 * The funds analyzed in this report may be based on or linked to MSCI Indexes, for which MSCI Inc., or its subsidiaries, may be compensated based on the fund’s assets under management or other measures. MSCI Inc. has established an information barrier between equity index research and ESG Portfolio Analytics. Additionally, ESG Portfolio Analytics are based on a variety of aggregation methodologies of the underlying covered holdings, and are not subject to intervention by any analyst. 336
Investment Committee - MSCI ESG Report MSCI ESG Portfolio Analytics MSCI ESG Portfolio Analytics University of Maine System - UMS Consolidated Investment Pool - 20160630 Portfolio Summary - MSCI ESG Ratings University of Maine System - UMS Consolidated Investment Pool University of Maine System - UMS Consolidated Investment Pool UMS Consolidated UMS Consolidated Investment Pool Investment Pool vs vs Client Client ESG Benchmark Benchmark Client Benchmark Client ESG Benchmark UMS Consolidated Investment Pool SUMMARY SCORE* WEIGHT** SCORE WEIGHT SCORE WEIGHT SCORE COMPARISON % Covered by ESG Research (Gross) 95.58% 96.83% 85.21% ESG Quality Score 5.43 100.00% 6.25 100.00% 5.14 100.00% -5.35% -17.76% ↓ ↓ ABSOLUTE PILLAR SCORES Environment 5.34 26.52% 5.74 26.94% 5.29 27.87% -1.09% -7.83% ↔ ↓ Social 4.68 40.30% 5.13 40.14% 4.33 42.04% ↓ -7.40% ↓ -15.60% Governance 5.51 33.05% 5.81 32.81% 5.28 29.98% ↔ -4.12% ↓ -9.03% ESG RATINGS ESG Scores Comparison Portfolio Rating Distribution (Gross Wt) 0% -2% AAA 0.0% 4.8% -4% ESG Quality Score AA -0.1% 8.9% -6% -8% A 0.0% 21.7% Environment -10% BBB -0.2% 18.7% -12% Social -14% BB -0.2% 16.7% -16% Governance B -0.1% 11.9% -18% -20% CCC 0.0% 3.7% UMS Consolidated Investment Pool vs UMS Consolidated Investment Pool vs No Coverage Client Benchmark Client ESG Benchmark -0.2% 14.6% Client Benchmark Client ESG Benchmark AAA 6.0% AAA 10.5% AA 12.5% AA 19.0% A 29.8% A 35.3% BBB 18.8% BBB 18.9% BB 13.8% BB 10.4% B 11.1% B 2.7% CCC 3.6% CCC 0.1% No Coverage 4.4% No Coverage 3.2% * All scores are on a 0-10 scale, with 10 being the best. Short position scores are inverted (i.e. 10 – score = inverted score). 2 ** If ESG coverage is less than 100% holdings are adjusted to 100% for report calculations. 337
Investment Committee - MSCI ESG Report MSCI ESG Portfolio Analytics MSCI ESG Portfolio Analytics University of Maine System - UMS Consolidated Investment Pool Sector Breakdown - Corporates University of Maine System - UMS Consolidated Investment Pool UMS UMS Consolidated Consolidated Investment Pool Investment Pool vs Client vs Client ESG UMS Consolidated Client Benchmark Client ESG Benchmark Investment Pool* Benchmark Benchmark SECTOR ESG SCORES SCORE WEIGHT SCORE WEIGHT SCORE WEIGHT SCORE COMPARISON Consumer Discretionary 4.52 8.81% 5.78 8.94% 4.52 12.74% ↔ 0.02% ↓ -21.76% Consumer Staples 5.45 7.89% 6.52 7.70% 5.43 10.10% -0.42% -16.68% ↔ ↓ 1 Corporates - Other 5.03 0.20% 5.14 0.16% 3.10 0.01% ↓ -38.37% ↓ -39.66% Energy 4.57 5.61% 5.10 4.66% 3.90 4.75% ↓ -14.63% ↓ -23.52% Financial 5.07 20.75% 6.07 20.36% 4.56 16.71% -10.20% -24.94% ↓ ↓ Health Care 4.44 8.50% 5.75 8.99% 4.53 10.68% ↔ 1.98% ↓ -21.29% Industrial 6.09 7.64% 6.61 7.77% 5.74 10.74% -5.71% -13.13% ↓ ↓ Materials 5.20 3.67% 6.43 3.58% 4.60 7.22% ↓ -11.70% ↓ -28.52% Real Estate N/A 0.00% N/A 0.00% 1.90 0.01% NA NA ↑ ↑ Technology 6.05 9.98% 7.22 10.21% 5.93 11.72% ↔ -2.11% ↓ -17.92% Telecommunications 5.35 3.20% 6.18 3.48% 5.46 3.00% 1.96% -11.73% ↔ ↓ Transportation 6.03 0.07% 6.23 0.06% 4.10 0.00% -32.00% -34.20% ↓ ↓ Utility 5.58 3.61% 6.04 3.49% 5.29 2.84% ↓ -5.07% ↓ -12.30% Overall 5.21 79.93% 6.21 79.40% 4.98 90.52% -4.28% -19.69% *Shading indicates low or high score in portfolio Relative Sector ESG Scores Portfolio ESG Scores & Weights (Bubble size) 5% 10 0% -5% -10% 8 -15% -20% -25% 6 Tech ESG Score Industrials -30% Telecomm Cons Stap Utilities -35% Financials Materials Cons Disc Health Care -40% Transport 4 Energy -45% Other 2 0 1 Aggregate category comprised of Corporation and Special Company Barra sectors. UMS Consolidated Investment Pool vs Client Benchmark UMS Consolidated Investment Pool vs Client ESG Benchmark 3 338
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