Climate Change: State and Local Governments

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1 For Professional Clients and, in Switzerland, for Qualified Investors only. Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds. Any views and opinions are those of the investment manager, unless otherwise noted. Climate Change: State and Local Governments Dan Rabasco On January 31, 2018, The Boston Company and Standish merged into Mellon Capital to form a combined entity, which immediately changed its name to BNY Mellon AMNA

2 Climate Change Initiative; State and Local Governments Thus, as of today, the United States will cease all implementation of the non-binding Paris Accord and the draconian financial and economic burdens the agreement imposes on our country. This includes ending the implementation of the nationally determined contribution and, very importantly, the Green Climate Fund which is costing the United States a vast fortune 1 Donald J. Trump President of the United States First of all, it s to say to the rest of the world that America is in we re in the Paris Accord So there is a large part of America well over a majority that is committed to serious climate action, because we know global warming is an existential threat. 2 Jerry Brown Governor of California The administration is abdicating its leadership and taking a backseat to other countries in the global fight against climate change. New York State is committed to meeting the standards set forth in the Paris Accord regardless of Washington s irresponsible actions. 3 Andrew Cuomo Governor of New York 1 Source: U.S. Climate Alliance Press Release, September Source: USA Today, November Source: Twitter, June For illustrative purposes only. 2

3 Climate Change Initiative; State and Local Governments Source: National Oceanic and Atmospheric Administration, September For illustrative purposes only. 3

4 Climate Change Initiative; State and Local Governments Source: United States Climate Alliance, September For illustrative purposes only. 4

5 Climate Change Initiative; State and Local Governments Source: Mayors National Climate Agenda, September For illustrative purposes only. 5

6 Climate Change Initiative; State and Local Governments Source: U.S. Department of Energy, February For illustrative purposes only. 6

7 GDP Output Equivalents for States GDP for individual U.S. States is comparable to many sovereign economies Source: Bureau of Economic Analysis (BEA) and International Monetary Fund as of 31 December For illustrative purposes only. 7

8 Fundamental Muni Analysis ESG Factors Climate Change Carbon reduction mandates - Clean Power Plan - State & federal mandates - Cost implications Natural disaster management - Low lying coastal areas - Drought susceptible areas Aging U.S. Infrastructure Water/Wastewater - Pipe maintenance - Water quality Transportation - Road and bridge condition Natural Resource Scarcity Water scarcity - Conservation policies Oil/Gas - Carbon footprint - Economic reliance Demographic Shifts Population-Aging/Migration - Healthcare needs - Social service demands - Pension costs - Infrastructure strain Pension Funding Pension funding gap is not sustainable - Crowd out essential service - Rating/spread risk Financial Disclosure 8

9 Muni Bonds Fund U.S. Infrastructure Four million miles of roadways 500,000 bridges 1,000 mass transit systems 16,000 airports 25,000 miles of intercoastal waterways 70,000 dams 900,000 miles of pipe in water systems 15,000 waste water treatment plants Source: National League of Cities. For illustrative purposes only. 9

10 U.S. Municipal Debt Market Profile Size of market US$3.8 trillion (45% the size of the U.S. Corporate Bond market) 2 Number of issuers - 50,000 (5x U.S. Corporate Bond market) 2 Outstanding securities - 1 Million (4x U.S. Corporate Bond market) 2 The first recorded U.S. municipal bond was issued by the City of New York for a canal in In 1929 the U.S. Treasury issued its first auction. Holders of U.S. Municipal Bonds - US$3.8 Trillion 1 Property/ Casualty Insurers 14% Other 4% Lack of institutional penetration - 70% retail investors 58% of municipal market is comprised of revenue bonds active broker dealers Commercial Banks 15% Households 43% Opportunity: Significant, fragmented, and inefficient market Investment Funds 24% 67% Retail Buyer Based 1 Source: Federal Reserve as of December 31, Source: Bloomberg, SIFMA and MSRB as of December 31, For illustrative purposes only. 10

11 Key Attributes: Tax Exempt vs. Taxable Debt Tax-Exempt U.S. Municipals Taxable U.S. Municipals Founding of Asset Class (Year) Tax Implications for Non-U.S. Investors Coupon Interest Paid Gross Coupon Interest Paid Gross Correlation to U.S. Treasuries Correlation to U.S. Investment Grade Corporates Debt Outstanding $3.2 trillion $600 billion Annual Issuance (5-year average) $305 billion $32 billion Average Daily Volume $10 billion $1 billion Index Characteristics: Bloomberg Barclays Bloomberg Barclays Municipal Bond Index Taxable Municipal Bond Index Market Value of Issues Outstanding $1.4 trillion $313.9 billion Number of Issues Outstanding 50,820 4,625 Average Yield to Worst 2.36% 3.47% Average Rating AA/AA- AA/AA- Duration to Worst Average Maturity Callable (%) 65% 17% 1 Note: correlations are duration adjusted to benchmarks. Source: Citigroup, Bloomberg, Barclays, BNYM AMNA, Thompson Reuters as of 31 December

12 U.S. Infrastructure Expenditure Needs to Increase Public Spending on Infrastructure has declined 2 U.S. Public Construction Spending as a % of GDP 2.2% Recession 2.0% 1.8% 1.6% 1.4% Dec-16 Dec-15 Dec-14 Dec-13 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec-00 Dec-99 Dec-98 Dec-97 Dec-96 Dec-95 Dec-94 Dec-93 Estimated capital requirement by 2025: $4.6 trillion 1 1 American Society of Civil Engineers 2017 Report Card; 2 Source: Bloomberg, Census Bureau, Standish as of 30 September For illustrative purposes only. 12

13 U.S. Municipal Infrastructure Debt Summary High Income Potential Preservation of Capital Limited Volatility / Diversifier Favorable Treatment (SOLVENCY II) 1 U.S. Municipal Infrastructure Debt U.S. Corporate High Yield Bonds U.S. Treasury Bonds S&P Revenue bonds generating stable and predictable revenues are qualified as infrastructure assets and receive a special treatment as per the Commission Delegated Regulation (EU) 2016/467 of September 30, 2015 U.S. Municipal Infrastructure Debt checks all the boxes 13

14 U.S. Municipal Bonds Favorable Yields 10 Year Sovereign Yield Comparison (in % terms) (0.50) Switzerland Japan Germany Netherlands Sweden UK Texas U.S. Treasury U.S. AA Corporates Taxable Texas Rated AA1/AA+/AAA (DBRS) Source: Bloomberg, BNYM AMNA as of January 9, These states/sovereigns were chosen based on comparable credit quality. Current scarcity of high-quality global fixed income assets with an attractive yield 14

15 Percent Attractive Credit Ratings Rating Distributions: Municipals vs. Corporates 1 30 Municipals Corporates Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C U.S. Municipals & Corporate Issuer Default History 2 Average Recovery Rates Global Municipals Corporates Aaa 0.00% 0.38% Aa 0.02% 0.78% A 0.07% 2.22% Baa 0.40% 3.93% Investment Grade 0.09% 2.38% Speculative Grade 8.17% 29.70% U.S. Municipal Debt Issuers 2 66% Global Corporate Issuers 3 48% Relative to Corporate debt, U.S. Municipal debt is higher quality For illustrative purposes only. 1. Source: Moody's Investors Services as of December 31, 2017; 2. Source: Moody s Investors Service, U.S. Municipal Bond Defaults and Recoveries Source: Moody s Investors Service Average Corporate Debt Recovery Rates for senior unsecured bonds

16 Market Correlations Correlation Matrix Based on Total Returns Since 1 January 1997 Bloomberg Barclays Muni Index Bloomberg Barclays U.S. Aggregate Index Bloomberg Barclays Treasury Index Bloomberg Barclays Taxable Municipal Index Bloomberg Barclays Corporate Index BofA Merrill Lynch World Sovereign Bond Index Merrill Lynch Master II High Yield Index Bloomberg Barclays Global Aggregate Index Bloomberg Barclays ABS Index Bloomberg Barclays Emerging USD Aggregate Index S&P 500 Bloomberg Barclays Muni Index 1.00 Bloomberg Barclays U.S. Aggregate Index Bloomberg Barclays Treasury Index Bloomberg Barclays Taxable Municipal Index Bloomberg Barclays Corporate Index BofA Merrill Lynch World Bond Sovereign Index Merrill Lynch Master II High Yield Index Bloomberg Barclays Global Aggregate Index Bloomberg Barclays ABS Index Bloomberg Barclays Emerging USD Aggregate Index S&P Source: Barclays, Merrill Lynch, Bloomberg as of December 31, 2017 Potential diversification benefits 16

17 Fed Funds 1-5 Yr 1-10 Yr 3-15 Yr Muni Fed Funds 1-5 Yr 1-10 Yr 3-15 Yr Muni Fed Funds 1-5 Yr 1-10 Yr 3-15 Yr Muni Fed Funds 1-5 Yr 1-10 Yr 3-15 Yr Muni Basis Points Performance U.S. Municipals Weather the Fed Barclays Municipal Index Returns as U.S. Fed Tightens Monetary Policy 450 Fed Rate Hike (L) Index Returns % % % 5.9% 4.2% 2.2% 1.3% 1.0% 1.7% 0.4% 0.9% 0.3% % 4.3% 3.2% 2.0% 10% 0 0% 1994 / / Dec 2015-Jan 2018 Source: MMD, Bloomberg, BNYM AMNA as of February 28,

18 BNY Mellon U.S. Municipal Infrastructure Debt Fund Portfolio characteristics (excluding cash) Fund Index 1 Duration (years) Yield to worst (%) Weighted average rating A AA- Weighted average price Weighted average time to maturity (years) Weighted average coupon (%) Weighted average life (years) Sector breakdown (% market value) Fund Index 1 General Obligation State Local Appropriation Pre-Refunded Insured TX Permanent School Fund Revenue Utility Water / Sewer Special Tax Hospital Airport Education Transportation Tobacco Other Revenue Other Cash and cash equivalents State breakdown (% of market value) California Pennsylvania Ohio Florida New York Illinois New Jersey Texas Louisiana Oklahoma Georgia Kentucky New Hampshire Missouri Colorado Virginia Oregon South Carolina Washington North Carolina Washington D.C. Connecticut Other³ -10% 0% 10% 20% 30% 40% 50% Ratings breakdown (% market value) Source: BNYM AMNA as of 31 March Blended index comprising 50% Bloomberg Barclays U.S. Municipal Bond Index and 50% Bloomberg Barclays Taxable U.S. Municipal Bond Index. 2. The Fund intentionally does not invest in tobacco bonds. 3. Other includes cash and cash equivalents Fund Index¹ AAA AA A BBB BB and below No rating Fund Index¹ 18

19 Summary: U.S. Municipal Infrastructure Bonds Numerous potential benefits for investors: Attractive source of income High credit quality Correlation benefits Defensive characteristics during U.S. Fed tightening cycles Large and diverse market Favorable Solvency II (SCR) treatment Infrastructure exposure with fixed income like liquidity, risk and returns 19

20 Appendix

21 Risk disclosures The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed. Tax treatment will depend on individual circumstances and may change in the future. Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives. Geographic Concentration Risk: The Fund primarily invests in a single market which may have a significant impact on the value of the Fund. Derivatives Risk: Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of your investment to fluctuate. When using derivatives, the Fund can lose significantly more than the amount it has invested in derivatives. Changes in Interest Rates & Inflation Risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may negatively affect the value of the Fund. Credit Ratings and Unrated Securities Risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the Fund. Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due. Charges to Capital: The Fund takes its charges from the capital of the Fund. Investors should be aware that this has the effect of lowering the capital value of your investment and limiting the potential for future capital growth. On redemption, you may not receive back the full amount you initially invested. Share Class Hedging Risk: Hedged share classes use techniques to try to reduce the effects of changes in the exchange rate between the share class currency and the base currency of the Fund. These techniques may not eliminate all currency risk. 21

22 Risk disclosures continued Volcker Rule Risk: The Bank of New York Mellon Corporation or one of its affiliates ("BNYM") has invested in the Fund. As a result of restrictions under the "Volcker Rule," which has been adopted by U.S. Regulators, BNYM must reduce its shareholding percentage so that it constitutes less than 15% of the Fund within, generally, three years of the Fund's establishment (which starts when the Fund's manager begins making investments for the Fund). Risks may include: BNYM may initially own a proportionately larger percentage of the Fund, and any mandatory reductions may increase Fund portfolio turnover rates, resulting in increased costs, expenses and taxes. Details of BNYM's investment in the Fund are available upon request. Counterparty Risk: The insolvency of any institutions providing services such as custody of assets or acting as a counterparty to derivatives or other contractual arrangements, may expose the Fund to financial loss. Share Class Currency Risk: Share classes may be denominated in a different currency from the base currency of the Fund. Changes in the exchange rate between the share class currency and the base currency may affect the value of your investment. 22

23 Important information For Professional Clients and, in Switzerland, for Qualified Investors only. This is a financial promotion and is not investment advice. For a full list of risks applicable to this fund, please refer to the Prospectus or other offering documents. Before subscribing, investors should read the most recent Prospectus, financial reports and KIID for each fund in which they want to invest. Go to BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. Investments should not be regarded as short-term and should normally be held for at least five years. The Fund is a sub-fund of BNY Mellon Global Funds, plc, an open-ended investment company with variable capital (ICVC), with segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS Fund. The Management Company is BNY Mellon Global Management Limited (BNY MGM), approved and regulated by the Central Bank of Ireland. Registered address: 33 Sir John Rogerson s Quay, Dublin 2, Ireland. In Austria, the current Prospectus and the Key Investor Information Document are available free of charge from Raiffeisen Zentralbank Österreich Aktiengesellschaft, Am Stadtpark 9, A-1030 Vienna. In Belgium, the KIID, Prospectus, articles of association and latest annual report are freely available upon request to from the paying agent : JP Morgan Chase Bank, 1 Boulevard du Roi Albert II, B-1210 Bruxelles, Belgium. The Prospectus, KIIDs, articles of association, annual and half-yearly financial reports are available in French. In France, the KIID, Prospectus, articles and latest annual report are freely available upon request to the centralising agent: BNP Paribas Securities Services, 3 rue d'antin, Paris, tél: In Germany, the prospectus is available from BNY Mellon Investment Management EMEA Limited, German branch, MesseTurm Friedrich-Ebert-Anlage 49, Frankfurt am Main, Germany. In Spain, BNY Mellon Global Funds is registered with the CNMV, Registration No In Switzerland, the Company is established as an open-ended umbrella type investment company under Irish law and the Sub-funds are authorised by FINMA for distribution to non-qualified investors in or from Switzerland. The Swiss representative is Carnegie Fund Services S.A., 11, rue du Général- Dufour, 1204 Geneva. The Swiss paying agent is Banque Cantonale de Genève, 17, quai de l Ile, 1204 Geneva. Investors in Switzerland can obtain the documents of the Company, such as the Prospectus, the KIIDs, the Memorandum and Articles of Association, the semi-annual and annual reports, each in their latest version as approved by FINMA, in German, and further information free of charge from the Swiss representative. BNY Mellon Investment Management EMEA Limited and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. Issued in the UK and Europe (excluding Switzerland) by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No Authorised and regulated by the Financial Conduct Authority. Issued in Switzerland by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA. PRE Exp. 19 July

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