Can Investing in Sustainability

Be the Source of Long Term

Value?

Rebeca Ehrnrooth

10 September 2014

Equilibrium CapitalThe Leader in Sustainability Driven Real Assets

• Founded in 2007, now over $830M of committed AUM on platform, growing with

• Four funds and other institutional-grade investment strategies offerings

• New strategies under development launching in Fall ‘14 and Spring ‘15

• Real Assets Sectors:

• Sustainability Driven: Whole systems approach and disciplined risk management builds

long-term assets value

• Productive, long-term, and active use of resources / real assets

• US-based Global Platform: Portland (OR), San Francisco, London

2

The Next Generation of

Real Assets Funds

Confidential

Renewable

Energy

Sustainable

Agriculture

Green

Real Estate

Water

Management

Land

Stewardship

Momentum in Real Assets Investing

• Increasing Investors Interest in Real Assets

• New publications and conferences, and increased audience

• Wall Street firms staking out their positions – JP Morgan’s new

research, Morgan Stanley’s initiatives, etc., Goldman Sachs’

impact bonds

• Continued allocation shifts into real assets

• Changing Conversations: increasing focus on current return needs vs. long-term capital returns, investment horizons,

alpha generation, and managing future long-term risks

• Sustainability as Economic Principle:

• Activities generating near term productive returns build long-term

capital values

• Productive long-term operating strategies enable financial flexibility

3

Next Generation Real Assets Strategies

Addressing Returns and Terms Requirement

Confidential

Defining Impact & Sustainable Investing

• Using market and investment tools to

drive positive impact on environment

and community, and deliver a return to

the investor

• 3 components to Impact:

Additionality

Intentionality

Permanence

• Executed in public policy, public interest, and regulation

• Monetization of trust and authenticity

• All asset classes

• Spectrum of returns and impact

4

PUBLIC

EQUITY

PRIVATE

EQUITY / VC

FIXED

INCOME &

CREDIT

REAL

ASSETS

Advisors &

Intermediaries

Fund

Managers

AssetsCapital

5

EnvironmentSocial

Global Challenges and Opportunities in “Market Failures”*

• Bottom of pyramid

• Food & hunger

• Financial inclusion

• Health

• Affordable housing

• Education

• Energy gap

• Clean water access

• Climate change

• Global demographics

• Resource constraint &

productivity

• Agriculture and food

• Environmental services

• Water

• Energy

* But not all problems can be solved with markets

4 Billion MORE People Eating Meat and Driving Cars

6

• Global macro trends:

Developing world population & middle class

Natural resource consumption

Pollution and Climate change costs

Income disparity and inequality

• Massive market shifts = new risks,

opportunities, & value

• It’s “just” smart macro-trends investing

7

Impact Investing, a 40 Year Evolution

1970’s – 1990’s: SRI, Religion as innovator, Vietnam, apartheid, environment

• “NO”

• Significant innovation

• SRI funds & shareholder activism

• Microfinance

• CRA

• Community banking & CDFIs

• Clean Air Act

• Clean Water Act

• SOX & NOX cap & trade

• Labeled with underperformance

The 2000’s

• “IMPACT AND/OR RETURNS”

• Awareness, debate, and education

• Network: GiiN

• Metrics: IRIS/GiiRs

• JPM report legitimizes the field

• Kyoto carbon credits

• MFI Nobel Prize & IPOs

• Foundations: More than Mission

• Social enterprise & VC model dominate impact investing

Today

• “RETURNS FROMIMPACT”

• Transition from “ideal” & early adopters…

• Institutionalization & professionalization

• Shift to breadth of “impactful” strategies and asset classes

• Scale and big levers

1st Wave

SRI2nd Wave

Blended Return

3rd Wave

Impact Drives

Returns

Today, The Conversation is Changing

• Return to investment basics: risk allocation,

risk appropriate returns, and duration

• Sustainability and resources constraints are

economic shifts

• Community and environmental problems are

opportunities for financial innovation

• ESG and sustainability are performance

drivers…in the long term

• Institutions entering (Sustainable Investing)

8

Resources

CALPERS ESG research database:

http://www.calpers.ca.gov/index.jsp?bc=/about/pres

s/pr-2013/june/finance-symposium.xml

CALPERS Protocol (September 2013):

http://www.calpers.ca.gov/eip-

docs/about/press/news/invest-corp/board-

offsite.pdf

Equilibrium Forum – Alan Emkin (Pension

Consulting Alliance): http://vimeo.com/69999326

WEF Report:

http://www.weforum.org/reports/margins-

mainstream-assessment-impact-investment-sector-

and-opportunities-engage-mainstream-i

Shift into Mainstream: Institutions, Risk & Scale

• Bloomberg ESG on main screen (2012)

• Munich Re September 2012 links climate

change to natural disasters…risk

management issuehttp://www.munichreamerica.com/mram/en/publications-

expertise/knowledge-publications/severe-weather/index.html

• Morgan Stanley Institute for Sustainable

Investing, November 2013, targets

institutional investorshttp://www.morganstanley.com/sustainableinvesting/

• Equilibrium’s assets are 90% institutional

(pensions), with no sustainability mandate

9

Shift to Mainstream

10

Movement Across the Investment Eco-System

• Institutions see the economic opportunity

• Experienced fund managers entering

Across asset classes and strategies

Maturing of structures

• Advisors applying rigor & research

Cambridge 700-800 funds in database

Imprint 1000+ funds in data base

Mercer, NEPC, PCA…

• Fiduciary duty – “loyalty & care”

Risk and value in context of duration

(liability)

Benefit Corp laws: 20 US states, including

DE

• Corporations shift from PR to strategy

Capital

Advisors &Intermediary

FundManagers

Assets

11

Impact Investing is Smart Investing

• Growth story

• Seeing value where others don’t

• Identifying and monetizing a market inefficiency

• Arbitraging different views of risk

• Re-aligning benefit and “currency” for each part of value chain to produce returns.

The “hidden strategies” in

successful impact funds are

really just investment

fundamentals.

Sustainable & Impact Investing, Today

• Entering the mainstream

• Institutional grade products across the

asset classes…across risk, impact & returns

• Advisors emerging

• 3rd wave: “returns from impact”

12

It’s YOUR values…

YOU define the value you seek

Equilibrium

13

Come for the returns,

Stay for the impact

The information contained herein and any other forms of communication related thereto are forinformation purposes only, and should not be regarded as an offer to sell or a solicitation of an offer toinvest in any security. Past performance is not indicative or a guarantee of future performance.Equilibrium Capital is not a registered investment advisor and does not provide tax, accounting, or legaladvice. Investors are advised to consult with their tax, accounting, or legal advisers regarding anypotential investment. This information and all the material shared in conjunction with it whether verbalor oral are confidential. Equilibrium Capital Group Europe Limited is an Appointed Representative ofSapia Partners LLP, a firm authorised and regulated by the Financial Conduct Authority.

Disclaimer and Forward-Looking Statements