1. Progressive Investing: A State of the Union Review of Performance and Impact Mark T. DonohueClean Technology Entrepreneur-in-Residence, Babson College &President, Sustainable Impact Investing, LLC6/17/2010Mark T. Donohue: BaseCamp SRI, NYC1

2. SRI Investing Today: Sizing the Market 570 UN Principles forResponsible SRI IndustryInvestment Signatories$7 trillion inassets undermanagement $18 trillion in assets under managementSource: UNEP Finance Initiative - Annual Report of the PRI initiative 2009; swissHEDGE 6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC2 3. SRI: TerminologyEthical Investing: Negative screening. Avoidingcompanies on ethical, moral or religious grounds (e.g.gambling, alcohol, tobacco). Classic SRI can embody solelynegative screens or negative plus positive screens.Impact investing: Actively placing capital in businessesand funds that generate social and/or environmental goodand a range of returns, from return of principal to abovemarket.* The primary focus is solely on positive screens. *Adapted from the Monitor Institute: Investing for Social and Environmental Impact **Adapted from Krosinsky: Sustainable Investing: The Art of Long-Term Performance6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 3 4. SRI: TerminologySustainable Investing / ESG: Simultaneously pursuingopportunities that arise from climate change while at thesame time avoiding risk in securities and industries that willmost likely be affected by ESG issues. (Environment, Social& Governance issues)** *Adapted from the Monitor Institute: Investing for Social and Environmental Impact **Adapted from Krosinsky: Sustainable Investing: The Art of Long-Term Performance6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 4 5. The New Criteria:ESG Environmental Social Governance Used to find hidden value or deficiencies that may not yet be reflected in financial results and share prices. * *Adapted from RiskMetrics methodology, Global ESG 100 January 20106/17/2010Mark T. Donohue: BaseCamp SRI, NYC 5 6. Sustainable Investing ProvidesBetter Risk Management Pricing in risk Credit risk Liability risk Reputational risk Adds managers that diversify world view of your portfolio Defining materiality of extra-financial factors Life cycle environmental cost-benefit-risk analysis Companies with enhanced ESG performance offer reducedrisk in terms of long term beta, given their mgrs better info6/17/2010Mark T. Donohue: BaseCamp SRI, NYC6 7. Source: Krosinsksy & Robins, 20106/17/2010Mark T. Donohue: BaseCamp SRI, NYC 7 8. RiskMetrics Global ESG 100 Source: RiskMetrics Group, Global ESG 100 January 20106/17/2010Mark T. Donohue: BaseCamp SRI, NYC 8 9. Examining the Links Between ESGFactors & Investment PerformanceA review of 20 academic12studies that examinedfund performance from1963-2005 (adapted fromDemystifyingResponsible InvestmentPerformance, UNEP &Mercer 44Positive Negative Neutral6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 9 10. Moskowitz Prize Winners 2004-2009 2004: Corporate Social and Financial Performance: A Meta-Analysis 2005: "The Economic Value of Corporate Eco-Efficiency 2006: "Monitoring the Monitor: Evaluating CalPERS Shareholder Activism 2007: "Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices 2008: "The Wages of Social Responsibility 2009: "The Economics and Politics of Corporate Social Performance" Source: Center for Responsible Business, Haas School of Business, UC Berkeley; www.sristudies.org6/17/2010Mark T. Donohue: BaseCamp SRI, NYC10 11. SRI as Valid Statistical Construct2004 Winners - Orlitzky, Schmidt & Rynes: Corporate Social and Financial Performance: A Meta-Analysis University of Sydney & University of Iowa Meta-analysis of 52 studies examining the relationship between Corporate Social Performance (CSP) and Financial Performance (CFP) The studies were performed during the 1972-1997 time period Conclusion: There is a positive association between CSP and CFP across industries and across study contexts."6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 11 12. Linking Environmental & FinancialPerformance to Valuation2005 Winners - Guenster, Derwall, Bauer and Koedijk: "The Economic Value of Corporate Eco-Efficiency" Erasmus University Authors found positive links between eco-efficiency and firm value and eco-efficiency and return on assets Conclusion: Results suggest that managers do not face a tradeoff between eco-efficiency and financial performance, and that investors can use environmental information for investment decisions."6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC12 13. Measuring the Impact ofShareholder and Social Activism2006 Winner - Barber - "Monitoring the Monitor: Evaluating CalPERS Shareholder Activism"University of California at Davis Author reviews the theory and empirical evidence underlying the motivation for institutional activism while distinguishing between social activism and shareholder activism. Estimated wealth generated via CalPERS shareholder activism is $3.1bn between 1992-2005 (authors figures) Conclusion: Institutional activism should be limited shareholder activism where there is strong theoretical and empirical evidence indicating the proposed reforms will increase shareholder value6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 13 14. Quantifying the Human Element2007 Winner Edmans - "Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices" University of Pennsylvania, The Wharton School A value-weighted portfolio of the "100 Best Companies to Work For inAmerica" earned an annual alpha of 3.5% from 1984-2009, and 2.1%above industry benchmarks. Conclusions Employee satisfaction is positively correlated withshareholder returns The stock market does not fully value intangibles Certain ("SRI") screens may improve investment returns6/17/2010Mark T. Donohue: BaseCamp SRI, NYC14 15. Examining Doing Well by Doing Good 2008 Winners Statman & Glushkov "The Wages of Social Responsibility" Santa Clara University, Leavey School of Business The return advantage that comes to SR portfolios from the tilttoward stocks of companies with high scores on social responsibilityis largely offset by the return disadvantage that comes to them by theexclusion of stocks of shunned companies. Conclusion: Investors can do well by doing good by using abest-in-class method for portfolio construction. However, thismethod does not call for negative screening of sin stocks.6/17/2010Mark T. Donohue: BaseCamp SRI, NYC15 16. The Relationship Among CSP, CFPand Social Pressure 2009 Winners Baron, Jo, Harjoto - "The Economics and Politics of Corporate Social Performance"Stanford University, Santa Clara University, Pepperdine University Authors examined examines the interrelations among CFP, CSP, and social pressure using a large data set of firms with social engagement for 1996 to 2004. For consumer industries, greater CSP is associated with better CFP and the opposite is true for industrial industries.Conclusion: Empirical studies have examined the relation between CSR and CFP, and while the results are mixed, overall the research has found a positive but weak correlation.6/17/2010Mark T. Donohue: BaseCamp SRI, NYC16 17. Paul Hawken: Critic or Purist?The cumulative investment portfolio of thecombined SRI mutual funds is virtually nodifferent than the combined portfolio ofconventional mutual funds.The language used to describe SRI mutualfunds, including the term SRI itself, is vague andindiscriminate and leads to misperception anddistortion of investor goals.6/17/2010Mark T. Donohue: BaseCamp SRI, NYC17 18. Walking the Walk: Hawken & Highwater Global Over 90% of Fortune 500 companies fail HG screening Google, Vestas, Ford among select companies Since inception in the fall of 2005, Highwater has returned atotal of 52.55% (as of Feb, 2010) Key question:Are the companys products or services helpful?6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 18 19. Selected SRI Fund Performance 2006-2009 25% 20% 20%15%10% 5%0% 0%-5% -10% -15% -13%-16%-20%Calvert Social Domini Social Parnassus Equity Highwater InvestmentEquityIncomeGlobal Fund6/17/2010Mark T. Donohue: BaseCamp SRI, NYC19 20. Source: Krosinsksy & Robins, 20106/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 20 21. Reviewing Performance AcrossSelected Asset Classes6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 21 22. The Blended Value Approachthat all organizations, whether for-profit ornot, create value that consists of economic, social andenvironmental value componentsand that investorssimultaneously generate all three forms of valuethrough providing capital to organizations. - Jed Emerson6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC22 23. Asset Class VehiclesBenchmark Cash / cash equivalentsCommunity banks, credit91-day Treasury Indexunions, loan funds Fixed income Bonds, debt securities Barclays Capital(sovereign, corporate) Aggregate Bond Index Public equitiesStocks, mutual funds, ETFs Russell 2000, S&P 500 Private equity Hedge funds, fund of funds,Private Equityother niche products Performance Index Real estateREITs, MBSsNCREIF Property Index CommoditiesETFs linked to commodities,S&P GSCI CommodityChicago Climate Exchange Index6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 23 24. Asset Class: Cash/Cash Equivalents Small Banks/Credit Unions Support community development Local farming Local small, sustainable businesses Energy efficiency programs Large Banks Via ESG/CSR criteria Provide funding to underserved communities Microfinance Community Reinvestment laws (CRA)6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 24 25. Asset Class: Fixed Income Securities Bonds: Targeted Investments Traditional low levels of ESG activity Community development / infrastructure Corporate Debt Issued by corporations with strong social/environmental programs Government Debt Creation of public goods Development of sustainable energy sources Risk of political controversy for investors6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 25 26. Fixed Income: Domini Social Bond Fund6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 26 27. Fixed Income: Pax World High YieldBond vs. Barclays Aggregate Bond6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 27 28. Asset Class: Public EquitiesFinancial Analysis & Portfolio Construction ESG analysis provides insight beyond what is presented in financial statements SRI + ESG screening criteria results in slightly lower volatility than non-screened benchmarks Long Term Investment Horizon Lower turnover = higher returns Incentives for management to overcome ST pressures, i.e. market myopia6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC28 29. Winslow Green Growth vs. Russell 20006/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 29 30. Performance of CleanTech Indices vs S&P 50080%60%40%20%0%2007 2008 2009 LTMQ1 2010 3 YTD -20% -40% -60% -80% CTIUS ECOAGIGL NEXS&P6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 30 31. Powershares CleanTech vs. Russell 20006/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 31 32. Powershares Global Water Index vs. Russell 20006/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 32 33. Water: Long-Term OutperformanceWater Utility Stocks vs. Major Indices1998-2003 800% 600% 400% Water Utility StocksDJIA 200% S&P 500Nasdaq Composite0% Water DJIA S&P 500Nasdaq UtilityComposite StocksSource: Summit Global Management, Bloomberg6/17/2010Mark T. Donohue: BaseCamp SRI, NYC33 34. Water: A True Neccessity 5 Yr Annualized Returns25%20%15% Water Utility StocDJIA10% S&P 500Nasdaq Composit5%0%1989-1993 1993-1998 1998-2003 2003-2008-5% Source: SummitGlobalManagement, Bloom6/17/2010Mark T. Donohue: BaseCamp SRI, NYC berg34 35. Asset Class: PE/VC Private Equity & Hedge Funds Hedge funds can incorporate SRI criteria as input intotaking long and short positions in instruments Funds may adjust standard investment strategies bylimiting exposure to pre-defined SRI-compliantinstruments* Relatively few hedge funds known to incorporate ESGcriteriaVenture Capital Classic VC investments in SRI are found in the cleantechsector6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 35 36. International Clean TechnologyReturns Analysis (ICTRA) Comprehensive annual report prepared by New Energy Finance (Bloomberg) and European Energy Venture Fair Gathered from all stages of private equity investments across EU and N. America, the analysis delivers aggregate return metrics at the investment level rather than the fund level 456 investments, 379 portfolio companies analyzed 2010 results will be presented in September at the European Energy Venture Fair (EEVF)6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 36 37. ICTRA Report: Investment IRR by Outcomes(# investments, # companies)21.3%* Public listing (31, 25) 83.2% Later up round (69, 65)32.9%M&A (33, 27) 13.5% PIPE** (13, 12)-0.5%No substantial change (186, 169) 0.0% Later down round (56, 48)-15.5%Written down (30, 29) -44.4%Liquidated/written off (38, 35) N/AAll Venture (456, 379) 42.4%Source: ICTRA, Bloomberg New Energy Finance 4.5%*6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC 37 38. Asset Class: Real Estate Real Estate as Hard Assets Responsible Property Investing (RPI) No-cost & value-add strategies Green building & energy efficiency Community (re)development Sustainable materials Smart growth & conservation Real Estate as Securities REITs Mortgage-backed securities6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 38 39. Investments in Energy Efficiency = High Returns Investment/ Rate of Annual Asset value Simple sq ft (US$) energysavings/sq increase at payback savings ft (US$) 10% caprate (US$)Janitorial0.015% 0.14 135,000 ImmediateO&M0.05 9% 0.20 198,000 4 monthsLighting1.0416%0.36360,0003 yearsHVAC1.219% 0.21207,0006 yearsCombined 2.3040% 0.90900,0002.5 years Source: Krosinsky & Robins, 20106/17/2010 Mark T. Donohue: BaseCamp SRI, NYC39 40. Asset Class: CommoditiesFew opportunities for ESG Commodities directly tied to natural resources What role for carbon? As pricing mechanism for externalities Potential for sub-categories Allow for sustainability factors, i.e. land use6/17/2010Mark T. Donohue: BaseCamp SRI, NYC40 41. What Does the Future Hold? The convergence of sustainability and financial analysis will continue Continued integration of ESG criteria by more asset/fund managers across asset classes, but primarily in public equities Evolution of regulations, standards and disclosures related to emissions/exposures Growth and development of carbon markets will provide opportunities and challenges Release of key UN report, "The Economics of Ecosystems and Biodiversity in late 2010, which will try to offer best of class metrics is valuing material inputs to business.6/17/2010Mark T. Donohue: BaseCamp SRI, NYC 41 42. Q&AContact Information:Mark T. DonohueMark.donohue@babson.edu 617.571.4440http://www.linkedin.com/in/marktdonohue6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC42 43. Appendix: United Nations Principles forResponsible Investment 1. We will incorporate ESG issues into investmentanalysis and decision-making processes. 2. We will be active owners and incorporate ESG issuesinto our ownership policies and practices. 3. We will seek appropriate disclosure on ESG issues bythe entities in which we invest. 4. We will promote acceptance and implementation ofthe Principles within the investment industry. 5. We will work together to enhance our effectiveness inimplementing the Principles. 6. We will each report on our activities and progresstowards implementing the Principles.6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC43 44. Selected Sources Sustainable Investing: The Art of Long-Term Performance, Krosinsky & Robins Handbook on Responsible Investing Across Asset Classes, Boston College Carroll School of Management, Institute for Responsible Investment UNEP FI publication: Translating ESG into Sustainable Business Value UNEP FI publication: Demystifying Responsible Investment Performance Goldman Sachs Global Investment Research: GS SUSTAIN focus list Impact Investing Report, The Parthenon Group Demystifying Responsible Investment Performance: A review of key academic and broker research on ESG factors , UNEP FI & Mercer6/17/2010 Mark T. Donohue: BaseCamp SRI, NYC44