Responsible investment capabilities and client solutions

Transcription

1 OVERVIEW Responsible investment capabilities and client solutions INVESTED. TOGETHER.

2 Executive summary Russell Investments recognizes the importance of Responsible Investment (RI) and Environmental, Social, and Governance (ESG) issues. They not only affect our clients investments and financial security; they also impact our business and the communities in which we live and work. Reflecting our commitment to these issues, we have been a signatory of the United Nations Principles for Responsible Investment (UNPRI) 1 since Across all investments managed on behalf of our clients, Russell Investments employs a proprietary ranking system in its manager research process incorporating factors (including ESG) that we believe affect the manager s ability to generate excess returns for our clients. As an outsourced investment manager for investors, we have decades of experience in active ownership. We recently received our assessment for the 2016 UNPRI survey and we scored an A+ in the strategy and governance category, where less than 20% of all asset managers and only one-third with $50bn+ in AUM received an A+ rating in this category. Our A/A+ scores also put us in the top quartile in the other categories across equities and fixed income. As with all of our broader capabilities, our long history of RI reflects growth with our clients. RI has become increasingly important for institutional investors. They are not only considering the new UNPRI initiatives, but also striving to gain a deeper understanding of what long-term sustainable investing means. Since the 2008 global financial crisis, asset owners are increasingly recognizing that investing in companies with a good reputation for corporate and social responsibility (CSR) can contribute to the longterm stability and financial performance of those companies. In other words, RI has become about enhancing stability, long-term returns, and reducing significant potential downside risks of the companies that investors choose to invest in. So, how can Russell Investments help you? In addition to the incorporation of ESG factors across our research practices, we have worked closely with clients to craft innovative solutions that fully incorporate their own investment beliefs. We build custom, outcome-oriented portfolios based on our clients specific objectives. In this paper, we outline a few of the innovative ways we have supported clients in reaching their RI goals: 1. Low-carbon global equity solution for a large superannuation fund in Australia with a 50% reduction in the portfolio s relative carbon footprint. 2. ESG integration in a global equity portfolio for a European client with exclusion criteria and returns objectives typical of all Russell Investments global equity portfolios. 3. Impact investing separate account mandate for a large European client focused on Healthcare, Financial Inclusion, and Clean Energy. 1 United Nations backed Principles for Responsible Investing. See Appendix 1 for Russell Investments Participation in numerous global voluntary and regulatory initiatives, in terms of industry collaboration and engagement. Russell Investments // Responsible investment capabilities and client solutions 2

3 Contents ESG integration in our investment process 4 Custom client solutions and ESG innovation 7 Case study 1: Reducing relative carbon footprint by leveraging our quantitative investment capabilities Case study 2: Active multi-region global equity portfolio via a positive ESG score tilt 9 Case study 3: Impact investing based on the client s specific RI beliefs 11 Appendices: 1. Global industry initiatives Related research and publications Global Sustainability Council Sample reporting ESG fund profile Additional references Being responsible voters 16 8 Russell Investments // Responsible investment capabilities and client solutions 3

4 ESG integration in our investment process Our RI capabilities span the five pillars of our multi-asset, multi-strategy investment process across external active managers and internally managed systematic strategies: ESG integration in investment process Integration of ESG issues and considerations in investment process Active ownership Commitment to best practices in ownership and alignment of interests Capital markets insights Research of indices and universes using third-party data Thought leadership White papers and conference presentations Industry collaboration Continual capability enhancement, in partnership with our clients and others 1. ESG integration in our investment process Russell Investments has a team of ESG Knowledge Specialists (EKS) representing a variety of asset classes and regions. They are tasked with ensuring that appropriate levels of focus and knowledge are applied in incorporating ESG issues into the overall manager evaluation process. Through a combination of investment manager interviews, survey responses, and quantitative reviews of a manager s portfolio, Russell Investments manager research analysts are able to determine whether the manager appropriately assesses the risk and return impacts of ESG factors, as well as how effective the manager has been at incorporating ESG factors into their investment process. We formally rank the manager s approach to incorporating ESG issues into the investment process on a scale of 1 to 5, with 5 being the highest; this ESG rank is then folded into our overall view of the investment manager. 1 SCALE OF 1 to 5 5 Manager does not demonstrate awareness of potential risks and return impacts of ESG issues on portfolio holdings. There are meaningful discrepancies between target ESG guidelines and portfolio holdings. Manager s perspective and analytical inputs on ESG issues lack rigor. The manager demonstrates adequate awareness of the potential risk and return impacts of ESG issues on individual holdings and the portfolio structure. The manager s perspective and analytical inputs on ESG issues is undifferentiated from peers. The manager demonstrates strong awareness of the potential risk and return impacts of ESG issues on individual holdings and the portfolio structure. The manager can clearly demonstrate how portfolio positioning reflects the management of relevant ESG risks and/or how ESG exposures can add value. The breadth of perspective and analytical inputs on ESG issues are superior to those of peers. Russell Investments // Responsible investment capabilities and client solutions 4

5 2. Active ownership Russell Investments has built a robust proxy voting and governance process over the last 30 years. Through work performed by various groups at Russell Investments spanning thought leadership, research, portfolio management, and capital markets teams we work not only to stay abreast of current issues and topics that are important to asset owners, but also to analyze the risk and reward merits of these topics. The Proxy Committee and Proxy Voting Guidelines Subcommittee meet regularly to ensure that our Proxy Voting Guidelines are aligned with current best practices regarding voting on ESG issues. Russell Investments actions as active owners are set on two cornerstones: a. Protect and enhance minority shareholder rights b. Protect and enhance shareholder value These two primary ownership principles guide us on analyzing, understanding, and valuing the merits of all ESG topics that come forward. Links to our guidelines are provided in Appendix 5 and an example of our proxy voting in practice is given in Appendix 6. In addition to Proxy Voting, Shareholder Engagement is an important component of Russell Investments active ownership capabilities. Russell Investments is uniquely positioned to utilize multiple levels of corporate engagement via its subadvisory investment manager relationships. This includes engaging directly with the management teams of the companies we invest in, as well as engaging with the investment managers we hire to sub-advise our portfolios in order to obtain multiple opinions on a security. Through this corporate engagement activity, our investment managers actively pursue change that leads to value creation and/or risk mitigation. 3. Capital markets insights Russell Investments capital markets research team has conducted extensive research on the link between value creation and ESG exposures across multiple geographies. Our research has found that active managers have tended to gravitate towards higher ESG scoring stocks, and that this preference is often unintentional. We believe that lower ESG scores may be consistent with other risks that are discovered in active security selection. Our 2014 paper, Are ESG tilts consistent with value creation? posits that ESG does matter in the pursuit of returns for active managers. Our manager research analysts also utilize the capital markets research team as a valuable source of ESG-related insights and research on the market overall to complement manager-specific views. Russell Investments // Responsible investment capabilities and client solutions 5

6 4. Thought leadership In addition to providing practical tools to our clients to meet their RI goals, Russell Investments experts speak at various industry conferences on the topic of sustainable and responsible investing. Examples of conferences we have spoken at include The World Summit Conference in The Hague, The Impact Capital Summit at the Peace Palace in The Hague, and the Caribbean Pension Fund Association in the Dutch Antilles. In addition, Russell Investments has been involved in advising the U.S. Department of Labor on RI, as well as on a variety of other issues. We provide ongoing education and thought leadership to our clients through our capital markets research, publications, and whitepapers. Some of our published whitepapers on this topic are listed in Appendix Industry collaboration Russell Investments is actively involved and engaged with a wide range of global initiatives on responsible investing. The chart in Appendix 1 shows our participation in some key initiatives over the years, both voluntary as well as those required by regulation. We work closely with clients to help them comply with regional regulations that have a direct or indirect impact on their investment programs. We have developed specific ESG fund reporting profiles in response to client requests (an example, our International Equity Fund ESG profile as of 3Q16, is available in Appendix 4.) In addition, we work with larger clients to create innovative custom solutions designed to meet their needs. Some of our solutions are described in the case studies on the following pages. Custom client solutions and ESG innovation Russell Investments has dedicated significant resources and effort to our ESG strategies and client solutions. The range of ESG strategies incorporated within our segregated and pooled solutions highlights Russell Investments versatility and experience in RI. These efforts are supported by: The Responsible Investment Committee, which sets company-wide RI and ESG priorities and initiatives, and is responsible for assessing and enhancing our RI capabilities to stay abreast of and meet evolving market and client requirements in RI. Our ESG Knowledge Specialists (EKS) oversee the integration of ESG criteria in our research process. The Russell Investments Sustainability Council 2, comprised of representatives from nine offices, is charged with dealing with sustainable work practices, information sharing on market trends, and assessing the competitive landscape. 2 See Appendix 3 for details of current Russell Investments Sustainable Council membership. Russell Investments // Responsible investment capabilities and client solutions 6

7 ESG fund solutions For clients that request specific ESG-oriented strategies beyond the process described on previous pages, we have developed pooled fund solutions to include: 1. Thematic investing-russell Investments Japanese Environmental Technology Fund. We built a fund focused on investing in companies with environmentally friendly technologies for a large distribution partner and client in Japan. 2. Screened universes-we screen out investments in controversial weapons for all commingled funds distributed in Europe, in compliance with the Financial Supervision Act (otherwise known as the Dutch Market Abuse Decree). 3. Enhanced ESG passive exposures-russell Investments Australian Responsible Investment ETF (Ticker: RARI). RARI tracks the Russell Investments Australia ESG High Dividend Index, which is weighted towards companies that demonstrate positive ESG characteristics after screening for companies with significant involvement in activities inconsistent with RI considerations (e.g. gambling, tobacco). Custom client solutions In addition to fund solutions, Russell Investments has worked closely with larger clients to build innovative solutions that fully incorporate their own investment beliefs. We strive to listen to our clients in building portfolios that are outcome oriented and based on meeting their specific goals. We will cover three specific case studies which illustrate how we work with our clients: 1. Reducing relative carbon footprint by leveraging our quantitative investment capabilities Russell Investments has leveraged its quantitative capabilities to construct a global equity portfolio with 50% reduction in relative carbon footprint while designed to generate benchmark-like returns. 2. Active multi-region global equity portfolio via a positive ESG score tilt We designed a customized social impact portfolio implemented via private markets and alternative asset classes, including both debt and equity. We integrated environmental, social, and governance factors along with exclusion criteria in a global equity portfolio, while still focusing on total return potential. 3. Impact investing based on the client s specific RI beliefs We designed a customized social impact portfolio implemented via private markets and alternative asset classes, including both debt and equity. Russell Investments // Responsible investment capabilities and client solutions 7

8 Case study 1 Reducing relative carbon footprint by leveraging our quantitative investment capabilities When an industry pension fund decided to introduce a relative carbon reduction strategy in its global equities portfolio, they needed an expert in systematic investment strategies. Drawing on our quantitative portfolio construction capabilities, Russell Investments has enabled the client to achieve a 50% relative carbon footprint reduction with a targeted tracking error of less than 50 bps compared to the benchmark. Background A large institutional investor had the following objectives: 1. Reduce the relative carbon footprint in their passive global equity portfolio to 50% of the benchmark. 2. Remove all exposures to tobacco. 3. Reduce the exposure to future carbon emissions. 4. Reduce the risk of stranded assets (i.e. fossil fuel reserves). Maintain a close tracking error with the benchmark over rolling three year periods. Solution To develop a strategy to meet the above objectives, the Russell Investments team began by defining carbon exposure in terms of current CO 2 equivalent (CO 2 e) emissions and potential CO 2 e emissions from fossil fuel reserves. In consultation with the client, the team adopted a metric based on Scope 1 (direct carbon emissions) and Scope 2 (electricity consumption), normalized by company revenue for CO 2 footprint and a similar metric based on the potential CO 2 emissions from fossil fuel reserves normalized by company assets. Rigorous testing was required to identify data anomalies and design a systematic approach to deal with dual listed securities. In a global equity benchmark (MSCI World), approximately 20% of the securities account for 90% of the total portfolio s carbon footprint. Also, two-thirds of the carbon footprint is concentrated in the Energy, Materials and Utilities sectors. These concentrations mean that simply targeting the highest carbon emitters can increase the tracking error significantly relative to the original portfolio. However, the Russell Investments approach uses this concentration as an advantage as the methodology developed only needs to tilt away from a small number of stocks to achieve a significant relative carbon reduction and keep tracking error low. Modest constraints around country, sector, and security are incorporated to minimize unintended risks. The outcome Russell Investments innovative solution has directly met the client s objectives of reducing the relative carbon footprint and exposure to stranded assets by at least 50% in their passive global equities portfolio with less than 50 bps tracking error. Our solution, allowed the client to achieve their responsible investment objectives without introducing significant investment risk. As the carbon market evolves, Russell Investments will continue to work with clients to ensure that the methodology reflects the practical realities and constraints in the market. Case study provided for discussion purposes only. Results are based on client's specific circumstances. Individual actions and results will vary. Russell Investments // Responsible investment capabilities and client solutions 8

9 Case study 2 Active multi region global equity portfolio via a positive ESG score tilt A large European institutional client tasked us with improving the returns from their RI global equity portfolio. They had previously implemented their allocation through two global equity RI mandates because they wanted to invest in a manner which was consistent with good ESG practice. However, performance from both managers was disappointing. Exhibit 1: The investment process The challenges Small allocation size restricts the number of segregated mandates: The client s preference was to hire managers on a segregated basis as this gave them greater visibility into the underlying exposures, enabling them to manage risk more effectively. However, the small size of the total portfolio restricted the number of underlying managers to two, limiting diversification within their existing strategy. Regulatory framework and administration: Because the client s funds are held in a regulated type of Master Trust where all third-party managers would normally require separate contracts, making changes requires extra authorization and paperwork and can slow down the change process. Also, monitoring multiple managers, and analyzing their aggregate exposure, can be complex and increases the level of internal resources required. Limited universe of credible RI products: A big factor contributing to the disappointing past performance was that the client was implementing its ESG agenda by picking from a limited pool of RI focused products. All of these factors influenced the client s decision to hire only two global equity managers at the outset. This client is German based and is investing in the funds of ( Kapitalverwaltungsgesellschaft ). A KVG is a regulated capital management company which specializes in the administration of investment. Russell Investments // Responsible investment capabilities and client solutions 9

10 Solution Russell Investments starts with identifying skilled asset managers and then evaluating their ability to implement RI. By focusing first on investment skill, we can better ensure that performance expectations are not compromised. Below we outline the solution we created for this client. 1. Employing multiple active global or regional equity managers (or subadvisors ) Russell Investments has a long history of identifying active managers that have outperformed in global and regional markets. Both global and regional managers are chosen on their ability to produce active returns and managers with complementary processes, and search universes are combined to produce returns which aim to outperform a global equity index over the long term. 2. Implementing the insights from the sub advisors through a single trading desk To overcome the challenge of implementation within the Master Trust framework, Russell Investments proposed Enhanced Portfolio Implementation or EPI. When we employ EPI, managers do not trade themselves. Instead, they send their portfolio holdings information and trades to us for implementation. The only contractual partner of the Master Trust is Russell Investments, who conducts all the trading on behalf of the client s portfolio. EPI provides the following benefits: Lower administration-related costs and swifter changes as only a single contract is required rather than multiple contracts. More cost-effective execution as trades are aggregated across all the mandates through a trading desk which traded $2.0 trillion in Reduced turnover costs by avoiding redundant trades caused by one manager selling a stock and another buying the same stock. Access to managers that may be closed to new business or unwilling to take on small mandates on a segregated basis at a price that the client finds acceptable. 3. Adjusting the trades/holdings to consider the client s ESG requirements The benefit of the centralized dealing approach is that the client can incorporate their ESG beliefs in this case by excluding stocks with specific ESG characteristics without distorting each manager s underlying process and outperformance potential. Russell Investments // Responsible investment capabilities and client solutions 10

11 The outcome Despite a tough environment for active management, the client s portfolio outperformed its benchmark for the period examined. The managers were chosen for their ability to generate active returns, and the universe from which these managers were chosen was not as restrictive as the previous arrangement. This novel central dealing approach allowed them to access multiple, complementary managers on a segregated basis cost effectively. This allowed the client to benefit from the lower alpha volatility that a multi manager approach offered. As such, the client was able to invest in more aggressive mandates in the pursuit of extra returns, while keeping overall risk to an acceptable level. This implementation approach also enabled the client to integrate their beliefs into the portfolio easily without having a detrimental impact on performance. Case study 3 Impact investing based on the client s specific RI beliefs One of our existing large Dutch institutional clients engaged with Russell Investments to design, construct, and implement a discretionary impact investment sleeve ( an impact portfolio ), focusing on private asset classes. Initially, the client allocated 1% of plan assets with a gradual 5% increase going forward. Crucially, our client required the net return from the impact portfolio to be aligned with the net return of the overall plan. As an organization focused on financial services and healthcare, the Client wished to focus the impact investing portfolio along these sectors. Designing the portfolio strategy As part of the design phase, Russell Investments private markets team worked closely with the client to further define their impact goals and to build an impact measurement framework. The goal was to (a) align the metrics and objectives to ensure availability and relevance of the data reported to the client, (b) not impose an undue burden on the underlying stakeholders for reporting purposes, and (c) have practical use for monitoring progress over time. Case study provided for discussion purposes only. Results are based on client's specific circumstances. Individual actions and results will vary. Russell Investments // Responsible investment capabilities and client solutions 11

12 The result of this process was an agreement with the Client to embed the following themes in the impact evaluation framework: Affordability, Empowerment & Transparency, Access, and Outcomes. We have included an excerpt of this impact framework, including themes and objectives below: SECTORS AND GUIDING PRINCIPLES IMPACT THEMES HEALTHCARE FINANCIAL INCLUSION Access Affordability Empowerment & Transparency Outcomes Improving access to and use of services that prevent and treat disease and support wellness Generally lowering the cost of healthcare and healthcare services for patients, including those that suffer from rare and/or chronic disease or are otherwise vulnerable or underserved Improving transparency to position the medical and patient community to make informed decisions and improve healthcare delivery. Including reporting patient outcome statistics (i.e., medical/clinical errors, hospital infection/complication rates, etc.) Improving standards of healthcare and healthcare services at the community level and at scale for underserved populations Creating and supporting opportunities for underserved populations to access financial services products that promote economic stability and upward mobility. Generally lowering the costs of financial services for underserved populations, with a focus on scalability. Improving transparency to position underserved populations to make informed financial decisions; support gender equity in accessing financial services and products, including ancillary services such as education and training. Improving socio economic stability as well as upward mobility at the individual level and at scale for underserved populations Improving patient outcomes for healthcare delivery, valuing extension and quality of life Improving employment growth and access to goods and services for underserved populations, including women Russell Investments // Responsible investment capabilities and client solutions 12

13 Constructing the core portfolio The range of investment opportunities in private markets and impact investing can be broad and dynamic due to market changes, regulatory regimes, social dynamics, and competitive trends influencing the profile and depth of the investment universe at any given time. Aligning the construction of the impact portfolio with the investment guidelines required ongoing responsiveness to changes in the market environment. For example, as part of our research into the microfinance opportunity set, we noticed the following shifts: into equity investments (away from fixed income only) expansion into sub-saharan Africa (and away from a historical emphasis on Latin America and Central Europe, which are more mature microfinance markets) transitions from larger scale microfinance Multinational Financial Institutions (MFI s) towards smaller MFI s whose target markets have a higher risk profile regulatory changes disrupting organizational dynamics (i.e. the roll-out of Alternative Investments Fund Managers Directive s (AIFMD) application to microfinance) flaws in the traditional microcredit model for supporting poverty reduction and alleviation For the Healthcare sub-portfolio, the Client conveyed a preference for managers that have headquarters or that principally do business in the Client s region. Following in-depth research and intensive engagement with our client, the client decided to expand their geographic focus. This reduced manager concentration risks and broadened the pool of high-conviction managers. Russell Investments // Responsible investment capabilities and client solutions 13

14 Managing the portfolio A critical component of the impact portfolio is how we measure the social impact. Within the institutional impact investing industry, impact metrics are a challenging and evolving concept. We therefore developed and shared our ideas about how to approach social-impact measurement with private equity managers so that the data pulled would be relevant and useful while not overly burdensome on the underlying portfolio companies. In doing so, we developed an impact performance measurement framework that aligned with the Client s goals and is based on industry guidelines and direct discussions with managers. An excerpt of our impact metrics model (for healthcare alone) is shown below: Healthcare Number of households provided new access to healthcare service Number, percentage of women Number, percentage of very poor, underserved Number of patients served, comparative cost savings Number of patients receiving free products/services Quality assurance mechanism and reporting made available to patients, public at large Reduction in negative outcomes (i.e., medical errors, infections) associated with delivery healthcare service Health intervention completion rate Disease/condition addressed The outcome The resulting solution, to date, not only meets the Client s impact outcomes but also aligns with their total portfolio risk and return targets. All of this is implemented with the same level of research rigor, robust investment process, and professional expertise as with the rest of their investment program. Russell Investments // Responsible investment capabilities and client solutions 14

15 Appendices 1. Global industry initiatives UN Principles for Responsible Investment (UNPRI) 2009 Signatory Annual Surveys Signatory Global Investor Statement on Climate Risk Carbon Disclosure Project (CDP) 2010 to date Russell Investments Participation Voluntary IGCC and IIGCC IGCC (2010) and IIGCC (2015) to date Membership Responsible Investment Academy (RIA) 2014 Membership/ Participation Tomorrow s Company 2011 to date Comply or Explain UK & Japan Stewardship Codes UK Practice Surveys Regulatory Comply Dutch Regulation Exclusion Controversial Weapons Effective 1 Jan Related research and publications Decarbonization 2.0: Russell Investments sustainable investing solution for the energy transition (March 2017) Focus Newsletter - The balance of power is shifting: Demographic changes impacting investors (October 2016) Case study: Russell Investments delivers 50% carbon footprint reduction for institutional investors new global equities portfolio (November 2016) It s not personal, it s business: A case study on institutional investing to generate social impact and financial return (May 2016) Evolution of sustainable / responsible investing (January 2016) Impact investing: A governance framework for incorporating impact investing in your investment program (June 2016) Energy sustainability: Trends, investment opportunities and risks in sustainable energy (December 2015) Russell Investments Decarbonization Strategy: Investigating different approaches to reducing the carbon footprint of an equity portfolio without materially impacting performance (May 2016) Are ESG tilts consistent with value creation? (July 2014) Governance process for evaluating sustainable investing: A guide for non-profit fiduciaries (June 2014) Mission-related investing for non-profits (July 2013) Integrating environmental, social, and governance (ESG) issues: Russell s manager research and sustainable financial value (February 2011) Themes on ESG current practice: U.S. and Pan-European core real estate open-end fund managers (March 2010) Responsible investment: Five tests of an SRI/ESG Policy (August 2008) We would be pleased to provide copies of these upon request. Russell Investments // Responsible investment capabilities and client solutions 15

16 3. Global Sustainability Council As of October Sample reporting ESG fund profile Sustainalytics ESG Score coverage: Sample Large Cap US Equity Fund: 91.7% Benchmark: 93.6% Note: This is not a recommendation to purchase or sell any of these securities. For illustrative purposes only. Russell Investments // Responsible investment capabilities and client solutions 16

17 5. Additional references Russell Investments Global Proxy Voting Policies and Procedures: Russell Investments PRI Transparency Report: United Nations backed Principles for Responsible Investing: 6. Being responsible voters First published as a blog on Russell Investments The Wire, June 17, 2016 by Nick Spencer, Russell Investments. Even before the U.S. primaries & UK referendum, voting has been a highly debated issue. Executive pay, board governance and climate change have been areas of focus in recent shareholder meetings. Whilst the UN Principles of Responsible Investment (UNPRI) and Stewardship codes have asked asset owners and managers to be more pro-active on voting practices, there is typically a concern that actions fall short of grandly worded stated intentions. Russell Investments // Responsible investment capabilities and client solutions 17

18 For US Pension Funds, the importance of voting was established in the 1974 ERISA Act which established voting rights as assets of their pension plans. Accordingly, Russell Investments has well established, detailed policies and approaches which consider global best practice and creating long term, sustainable value for shareholders. We use a proxy voting company (Glass Lewis) to help analyze, organize and input to our custom guidelines. But that is not enough. Individual situations are complex and need direct consideration. Where we have a meaningful stake in a company, our voting committee considers key issues in more detail and that can lead to us casting a different vote than that of the proxy company s default recommendation. Exxon Mobil s recent AGM serves as a good illustration of this process in action. After the election of directors and auditors there were 12 proposals, with management supporting its executive compensation while opposing all 11 Shareholder proposals. Generally, we support management as they have been tasked to create long-term value in the company. At Exxon s AGM, we supported the Directors election and the majority of the management s recommendations. However, when scrutinizing voting, we know that management can lag in best practices in particular on governance, compensation and disclosure. For Exxon Mobil, a summary of some of these key proposals, and their outcomes, is listed below: Exxon Mobile Annual Meeting Agenda (05/25/2016) Mgmt Rec GL Rec RUSSELL INVESTMENTS VOTE RESULT FOR RSEULT AGAINST 3 Advisory Vote on Executive Compensation For For Against 89% 11% 4 Shareholder Proposal Regarding Independent Board Chairman Against For For 39% 61% Shareholder Proposal Regarding Proxy Access Shareholder Proposal Regarding Climate Change Policy and Commitment Shareholder Proposal Regarding Climate Change Policy Risk Against For For 62% 38% Against Against Against 18% 82% Against For For 38% 62% For illustrative purposes only. Russell Investments // Responsible investment capabilities and client solutions 18

19 Each of these can be considered in turn: #3 We voted against executive compensation if there is a pay for performance disconnect, or the company maintains poor compensation practices. In our individual review, the proposal did not meet our standards and we voted against it, taking a different stance from our proxy voting provider. However, we only comprised part of a small minority overall. #4 We voted for the independence of Chairman and Executive which we consider to be a best practice. This was not carried out but is gaining wider industry support. #7 This was a successful vote for the right to place nominees on the management proxy. However, we only support these motions when carefully drafted for example, we require that these limit access to shareholders who have collectively have at least 3% of the vote continuously for a minimum of three years. The successful vote shows that shareholders can exert their rights over management. #12 We voted for the Aiming for A shareholder proposal that requires reporting on Impacts of Climate Change Policies. Similar resolutions have been supported by Exxon s peers. We believe that management demonstrating their understanding of climate change risks supports long-term shareholder value. #11 In contrast to #12, we voted against this climate change action. Shareholder proposals can often be well intentioned but can suffer from weak drafting or overly politicized intentions. So, while we may feel sympathetic to the underlying intention, it is important to consider the actual drafting and whether it directly assists the creation of long term sustainable value. Overall, we make tens of thousands of votes each year and have developed detailed guidelines around best practice. We use the support of a proxy voting company to help us aggregate our response but we can take views that are different from both management and our voting company. As the Exxon Mobil AGM shows there are many nuances to individual proposals and best practices. This means that great care needs to be taken in responsible voting and considering individual records. Russell Investments // Responsible investment capabilities and client solutions 19

20 ABOUT RUSSELL INVESTMENTS Russell Investments is a global asset manager and one of only a few firms that offers actively managed multi-asset portfolios and services, which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors using our core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures to help investors achieve their desired investment outcomes. FOR MORE INFORMATION Call Russell Investments at or visit russellinvestments.com/institutional Important information Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investments ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments management. Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the FTSE RUSSELL brand. Copyright Russell Investments Group, LLC. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. First used: October Revised: March AI Russell Investments // Responsible investment capabilities and client solutions 20