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Sustainable + Responsible Investment Research March 15, 2016

M O R G A N S T A N L E Y R E S E A R C H Global Morgan Stanley & Co. International plc+ Jessica Alsford [email protected] +44 20 7425-8985

Victoria Chapelow [email protected] +44 20 7425-6651

Faty Dembele [email protected] +44 20 7425-3849

Carmen Nuzzo [email protected] +44 20 7677-0209 Morgan Stanley & Co. LLC Ev a Zlotnicka [email protected] +1 212 761 4075

Morgan Stanley does and seeks to do business w ith companies covered in Morgan Stanley Research. As a result, investors should be aw are that the f irm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.

For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

M O R G A N S T A N L E Y R E S E A R C H

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M O R G A N S T A N L E Y R E S E A R C H Sustainable & Responsible Investment Research

March 15, 2016

Morgan Stanley’s Sustainable + Responsible Investment Research Team

Jessica Alsford, CFA Executive Director Head of Global SRI Research +44 207 425 8985 [email protected] Sector cov erage: Retail, Mining, Diversified Financials, Transport, Banks, Luxury Goods, Consumer Staples, Media.

Victoria Chapelow Vice President +44 207 425 6651 [email protected] Sector cov erage: Util ities, Healthcare, Telcos, Insurance.

The Morgan Stanley Sustainable + Responsible research team believes that by better understanding the Environmental, Social, and Governance (ESG) risks and opportunities that a company faces, investors can improve their investment processes and decisions. In collaboration with sector analysts, the team has designed a Global Valuation Framework which supplements analysis of financial capital with an evaluation of governance and three other types of capital: natural, human and social.

Eva Zlotnicka Vice President +1 212 761 4075 [email protected] Sector cov erage: Information Technology, Business & Employment Services, Oil & Gas, Chemicals, Leisure, Tobacco.

Faty Dembele Associate +44 207 425 3849 [email protected] Sector cov erage: Consumer, Capital Goods, Construction, Autos, Aerospace & Defence, Real Estate.

Carmen Nuzzo Executive Director +44 20 677 0209 [email protected] Sustainable Economics

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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March 15, 2016

1. Recent S+R Team Reports………………

2. Sustainability Themes……………………

3. ESG Integration…………………………...

a) Framework

b) Examples of Integration

4. Appendix…………………………………...

Table of Contents

pages 4-22

pages 23-25

pages 26-35

pages 36-38


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March 15, 2016

Recent S+R Team Reports


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March 15, 2016

In Case You Missed It…

Sector Title Date Page Number Construction Cement industry: from grey to green 08-Mar-16 6 All sectors Global Tax Reform (series) 27-Jan-16 7 All sectors COP 21 Recap: The proof is in the pudding 14-Dec-15 8 All sectors El Nino: An update – Key takeaways from the call 08-Dec-15 22 All sectors Sustainable Economics: Mind the inequality gap 24-Nov-15 9 Consumer Staples Investor Roadmap on Food Safety 19-Nov-15 10 All sectors Sustainability Themes – Top Picks Globally 05-Nov-15 24 Industrials, Utilities, Tech Consumers & Climate Change: The home energy efficiency opportunity 03-Nov-15 11 All sectors, Technology Investor Roadmap on Cyber Security 28-Oct-15 12 Banks Investor Roadmap – How are banks responding post ~$260bn litigation? 19-Aug-15 13 Insurance Insurance and Technology: Opportunities for growth in Africa 14-Aug-15 14 All sectors Addressing Climate Change and the Investment Implications 12-Aug-15 15 Mining Copper & Water – Expensive Solutions 22-Jul-15 16 All sectors ESG Integration in Practice 02-Jul-15 30 All sectors Investor Roadmap on Corruption 02-Jun-15 17 Materials, Industrials Carbon Capture and Storage: A degree of progress? 28-May-15 18 Technology Tech Sector Field Trip Feedback 22-May-15 22 All sectors Feedback from Roundtable on Social Progress Index 12-May-15 22 Energy Feedback from Roundtable on Social Risks to Oil & Gas Companies 21-Apr-15 22 Tech – Software & Services The Valuation Impact of Human Capital 30-Apr-15 19 Technology – Hardware Why ‘Conflict Minerals’ in Electronics Matter 16-Apr-15 20 Consumer Staples, Healthcare Sustainable Economics: The Bitter Aftertaste of Sugar 18-Mar-15 21

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March 15, 2016

Cement industry: From grey to green March 8, 2016

Cement producers will have to demonstrate further commitment to tackle climate change: Following the Paris Climate Change agreement the

industry has committed to reduce its CO2 footprint globally by 20-25% by 2030.

2012 2020 2025Cement production 3836 4394 4506Thermal energy intensity (GJ/T clinker) 3.7 3.3 3.1Electricity intensity (Kwh/t cement) 96.3 88.5 88.2Share of alternative fuels and solid biofuels 3% 8% 10%Clinker to cement ratio 0.69 0.68 0.68CO2 intensity (T CO2/ t cement) 0.60 0.56 0.54

Our benchmarking analysis highlights best-in-class producers and those with most scope to improve their cost base: LafargeHolcim, Cemex Latam and Anhui Conch stand out

in their respective peer groups as the most efficient, enjoying structural cost leadership.

In contrast, Buzzi and Cementos Argos have room for improvement, ranking at the bottom of the range on several key indicators.

The HeidelbergCement / Italcementi merger should allow Italcementi to benefit from Heidelberg's environmental best practices.

Source: Based on IEA data from Technology clean progress 2015 © OECD/IEA, IEA Publishing http://www.iea.org/t&c/term sandconditions/

We see 4 key levers for cements plants to both reduce their environmental impacts and cost base: Kiln optimization Energy efficiency measures Clinker substitution Emission controls

Better energy efficiency will be central to competitiveness and sustainability Energy is one the largest cost component for

cement producers in EM and accounts for around 30% of operating costs vs 20% in DM.

Source: Company data, Morgan Stanley Research


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March 15, 2016

Global Tax Reform: A new innovation box – how will the US proceed? January 27, 2016

S&P 1500: Research & Development Expenditure is concentrated in the IT and Healthcare sector

Source: Company Data, Morgan Stanley Research. Note: Definition of R&D expenditure is taken from the annual report and costs is total disclosed costs. Screen assumes qualified R&D is aligned with reporting R&D, R&D is primarily US based and the persistence of US operating margins similar to overall corporate levels.

Global Tax Reform Reports: Global Tax Reform: EU takes further steps to combat tax avoidance in Belgium (11 Jan 2016) Global Tax Reform: An Update on BEPS- Final Package (6 Oct 2015) Global Tax Reform: Roundtable w ith the Head of the OECD's BEPS project (5 June 2015) Global Tax Reform: An Update on BEPS (13 Feb 2015) Understanding Global Tax Reform (12 Nov 2014)

Globally, OECD and non-OECD countries have been on board with the recommendations provided by the BEPS project to reform the global tax system and action has started: • Australia, China, Denmark, France, Ireland, Mexico, the

Netherlands, Norway, the US and UK are among countries that have enacted or announced plans on country-by-country reporting.

• EU State Aid investigations carried out at both the country and company level.

• Ireland closed the Double Irish Tax Loop as part of its 2015 budget.

One key uncertainty remains around the possible action taken by the US. A patent box may be the US’ best means to combat tax inversions and remain competitive with other countries. We believe that, if a patent box is introduced in the US, Tech and Pharma companies would see the greatest impact, as they hold significant property and patents. However, the patent box might not encourage growth in employment contrary to expectation.

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March 15, 2016

We highlight five noteworthy areas of progress in the Paris negotiations: Introduction of the ambitious 1.5

degree Celsius goal. A greater focus on progress and

continual commitment – to be reviewed every 5 years.

Financing – $100bn per year in climate finance for developing countries by 2020 and a role for private investment.

Market-based emission trading supported in principle.

… though two key elements are noticeably lacking: Lack of clear roadmap towards the

1.5 degree scenario. Enforcement mechanism.

For utilities, oil & gas, mining: Overall, we continue to see a long-

term challenge for these sectors, while in the short term our analysts see a low immediate impact.

COP21 Recap: The proof is in the pudding December 14, 2015

Data as of December 14, 2015 Source: World Resources Institute (WRI) CAIT available online at: http://cait.wri.org/indc/ and Morgan Stanley Research

Top 20 emitting countries: Climate change policy tools & submitted Intended National Determined Contributions (INDCs)

http://cait.wri.org/indc/


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March 15, 2016

Income inequality within many countries is increasing, especially in developing markets

Complementing traditional inequality measures, our MS Inequality Indicator (MSII) maps country performance:

Southern European countries and the US score poorly on the MSII. Among the Nordic countries that score well, Sweden has experienced the largest increase in inequality since the mid 1980s, although the overall score remains comparatively low.

MS stock analysts highlight how companies are adapting to market polarisation and how the incentives coinciding with inequality can stimulate innovation and inclusiveness to a certain degree:

In particular, technology can help enhance the accessibility, availability and affordability of goods and services, particularly in telecommunications and the automotive sector.

Our analysts highlight the pharma sector as most exposed to rising policy risks and identify potential opportunities:

Companies our analysts view as well positioned for the growing inequality gap include Nestlé (NESN), Constellation Brands (STZ), Estée Lauder (EL), White Wave (WWAV) and Mondelez (MDLZ) in the Consumer Staples sector, and Ryanair (RYA), Delta Air Lines (DAL) and Spirit Airlines (SAVE) in Transport.

Sustainable Economics: Mind the inequality gap November 24, 2015

Source: OECD, Morgan Stanley Research

Source: Note: 1 = most unequal. The ranking includes several indicators on the labour market: balance sheet, health status and digital access. Source: OECD, Morgan Stanley Research


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March 15, 2016

We outline 4 trends that increase the pressure on food producers:

1. Higher regulatory and consumer scrutiny 2. Economically-motivated adulteration risks 3. Complex and globalised supply chains 4. Changes in agricultural and veterinary practices

Failure can lead to multi-million dollar recalls and commercial losses, damage brand equity and raise operating costs:

• Across our 4 case studies, sales recovery took up to a year, and in some cases recall costs exceeded $100 million.

Companies need to develop a preventative and holistic approach to mitigate such risks:

1. Fostering a food safety culture 2. Enhancing supply-chain visibility 3. Implementing supply-chain ‘stress tests’ 4. Investing in technologies to detect and prevent hazards

Investor roadmap on food safety November 19, 2015

There are some investment opportunities in the food safety space

• We identify 8 stocks across the US and Europe exposed to this theme: Agilent, Biomerieux, Bureau Veritas, Intertek, PerkinElmer, Qiagen, SGS and ThermoFisher.

• Although food safety solutions contribute a relatively small share of revenue today, they are increasingly becoming a strategic focus for these companies.

The incidence of foodborne illnesses remains high across the globe.

Source: US FDA, Center for safety and nutrition. Class I recalls are the most severe recalls


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March 15, 2016

The residential sector is often overlooked in climate change discussions despite contributing 17% of global CO2 emissions.

We outline 4 consumer actions that save energy (and thus carbon emissions), with nearly 50 positively exposed global stocks:

1. Use less energy (buy energy efficient appliances or lighting) 2. Conserve energy (install insulation or fenestration) 3. Monitor & automate (leverage Internet of Things through demand

response or smart connected home systems) 4. Use renewable energy (choose renewable energy suppliers or install

distributed solar)

Consumers already changing behaviour around residential energy consumption for economic, environmental and other reasons:

• ~60% of surveyed consumers globally are willing to pay more for more energy-efficient products.

• 63% of UK consumers are willing to consume less electricity during peak hours in return for a discount.

• 69% of UK consumers are willing to change the way they manage their appliances via ‘smart’ home systems.

Consumers likely derive value from increased convenience and control and other new features provided by energy-saving tech innovations and Internet of Things.

Consumers and Climate Change: The home energy efficiency opportunity November 3, 2015

Source: US EIA Annual Energy Outlook 2015, Morgan Stanley Research

Source: Greendex 2014, Consumer Choice and the Environment- A Worldwide Tracking Surv ey, National Geographic, Globescan


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March 15, 2016

Investor Roadmap on Cyber Security October 28, 2015

Total number of cyber security incidents (mn)

The Cost of Cyber Attacks

Source: PwC, Global State of Information Security Survey 2015 & 2016

Source: Ponemon Institute, HP, 2015 Cost of Cyber Crime Study: Global, October 2015

Cyber attacks and data breaches present an opportunity for some sectors – Security Software, Aerospace & Defence and Insurance – but a risk for many more. Cyber crime costs the global economy over $400 billion, according to the Centre for Strategic and International Studies (2014). • For an individual company, a cyber attack can disrupt business

operations, create confusion and disable services. • Yet the immediate signs of a cyber attack are often not the full

extent of the damage – it can also lead to loss of competitive advantage and brand reputation as a result of loss of IP, customer data or information on M&A deals.

For the outsider, it can be hard to assess how exposed a company is to potential cyber attack. We identify how investors can analyse the level of cyber security for a company by: I. Identifying the risk by industry of operations. Sectors that hold

consumer data (e.g. credit-card data and medical records) are a target for cyber attackers.

II. Understanding how the company is tackling cyber security. The impact of recent cyber attacks has created strong demand for cyber security measures – we identify 22 stocks exposed to this theme. The cyber security industry is now >$60bn in market cap, with the cyber insurance market expected to be worth $8-10bn by 2020, according to our global insurance team.


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March 15, 2016

Investor Roadmap – How are banks responding post ~$260bn litigation? August 19, 2015

Debate 1: How far through the litigation process are the banks?

• After ~$260bn taken in litigation, our base case is for another ~$65bn to come for the top 25 US/EU banks by 2017.

• US banks appear further along the litigation settlement process than Europeans.

Debate 2: What steps have banks taken to adjust conduct, incentivisation, early detection and prevention?

• Disclosure among the banks is variable; however, there are numerous examples of how banks have changed policies to strengthen culture and increase focus on risk management.

• Compliance headcount is increasing; chief risk officers can now be found sitting on group boards.

• Total pay has decreased (-32% between 2006 and 2014). • There is an increased focus on long-term incentives, with

LTIPs representing a greater percentage of total pay.

Debate 3: What are the lasting implications on returns? • A reappraisal of operational risk has required more capital

and is influencing the regulatory debate. • Operational risk RWAs rose to 21% of total RWAs in Q2

2015 compared to ~14.5% in 2012.

Investment conclusions: • US major litigation is largely behind us, except for

the DoJ litigation on GS and Libor. • We expect payout ratios at JPM, BAC and C to

rise from an average of 33% in 2014 to 67% in 2018.

• In Europe we are below consensus on dividends for CS, BARC, DBK, STAN and HSBC but ahead for UBS.

Litigation costs – Top 5 US banks vs major 20 in Europe – European banks may still have c30% of the way to go

Source: Actuals from 2009 to 2Q2015, forecast is MS base case 3Q15 to 2017; US Banks include the Top 5 banks with largest litigation costs: BAC , JPM , Citi, WFC and GS Source: Company data, Morgan Stanley Research


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March 15, 2016

Insurance and Technology: Opportunities for growth in Africa August 14, 2015

Insurance needs to embrace technology to stay competitive. • All aspects of the insurance value chain could be affected by

technology. • In general, the insurance market has been slow to adapt to this trend.

Africa and other emerging markets could be at the forefront of digital innovation within the Insurance industry.

• We have seen a surge in mobile and internet usage in Africa, providing an opportunity for insurers to take advantage of digital innovation.

• Currently there is low penetration in the insurance sector outside of South Africa and a strong GDP outlook.

Number of live mobile insurance services (Dec 2014):

As GDP per capita increases, insurance penetration is likely to increase:

• Mobile money has been growing, encouraging a culture of paying for goods and services on mobile.

• Regulation has been supportive.

Investment in Africa is an opportunity for growth for European insurers.

• We have modelled the growth in total insurance premiums for Africa (excluding SA) to 2020 and see an annual growth rate of 12%.

• The emergence of new business models for emerging markets may also have an impact on how the industry globally delivers insurance.

Source: US GDP per capita based on Prudential estimates (*Geary- Khamis dollar, based on purchasing power parities with 1990 benchmark year-one, 1990 dollar has the same purchasing power as the US dollar in 1990). Current Africa figures taken f rom Swiss Re 2013.

Source: GSMA, 2014 State of the Industry- Mobile Financial Services for the Unbanked


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March 15, 2016

Addressing climate change and the investment implications August 12, 2015

Climate change may impose significant risks on businesses but also brings opportunities

• Climate change risks include operational disruption, production reduction, cost increase, and demand reduction.

– Some effects may be already taking place, such as disruption of production by natural disasters.

• Alongside material risks, growth opportunities exist for sectors that can provide climate change solutions, such as technology, capital goods, chemical, etc.

We identified several investment relevant technological and financial solutions for climate change

• Political, non-governmental and private entities are urging creation of a unified global carbon market.

• Key technological solutions, such as utility fuel switch and carbon capture and storage, may see more investment and deployment in recent years.

• Adaptation is regarded as equally important as mitigation (COP21).

COP21 may potentially reach a universal agreement to address climate change

• International organisations/groups such as the UN and EU, and countries with substantial carbon emissions such as China and the US, are expressing willingness to curb climate change.

• Top emission sectors such as utilities, transport and industrials will likely see more regulations on limiting emissions.

Key external climate change risks

Source: C2ES, Morgan Stanley Research

Morgan Stanley’s ESG Valuation Framework: Climate Change

Source: Morgan Stanley Research


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March 15, 2016

Copper and Water: Expensive solutions July 22, 2015

Copper competes for increasingly scarce water resources • Water is critical to copper production (e.g. crushing, flotation,

transportation) • 78% of copper produced by the world’s 20 largest mines

(~40% global production) is in water challenged regions • Global demand for water will exceed supply by 40% in 2030 • Structural shifts in copper mining (lower grades and rising

sulphur content) demand more water intensive processes.

Production and new projects already affected today • Tia Maria mine, Peru – hampering construction • Buenavista mine, Mexico – looking for alternative water

sources • Los Bronces, Chile (Anglo American) – production below

plan in 1H2015 • Los Pelambres, Chile (Antofagasta) – longer permitting

periods, production disruptions and delayed growth Expensive desalination plants are the preferred solutions • Chilean law proposes a draft bill which requires mandatory

use of desalinated water for certain mines (>150 litres (40 gallons) of water per second)

• Current projects in Chile include: Candelaria (Lundin Mining); Esperanza (Antofagasta); Escondida (BHP Billiton and Rio Tinto); El Abra (Freeport-McMoRan).

More capital and higher opex lift incentive price and reduce IRR • Additional US$2000-2,800/tonne to capital intensity

and US$92/tonne uplift to annual operating costs • To maintain a minimum unlevered project IRR of 15%

(pre-tax), this requires a US$0.18-0.23/lb increase in our current estimate of copper’s incentive price of US$3.05/lb (+6-8%)

An additional US$0.18-0.23/lb is required for the copper incentive price

Average Capital Intensity US 0.93

Existing Ops Water Use Intensity (LpS/kt) 8.2

Projects Water Use Intensity (LpS/kt) 5.9

% of Recycled Water (assume sample average) 171%

Required Water Extraction – Existing Ops (LpS/kt) 3.0

Required Water Extraction – Projects (LpS/kt) 2.2

Existing Ops Required Capital (US$/t) 2,822

Projects Water Required Capital (US$/t) 2,019

Min pre tax ROCE (%) 15%

Existing Ops Implied EBIT (US$/t) 423

Projects Implied EBIT (US$/t) 303

Add: Average Opex of running desalination plants (US$/t) 92

Existing Ops Implied EBIT (US$/lb) 0.23

Projects Implied EBIT (US$/lb) 0.18


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March 15, 2016

Investor Roadmap on Corruption June 2, 2015

Information on corruption is by definition hard to come by. • Transparency International’s Corruption Perception Index

provides a useful starting point. • However, corruption still occurs in areas of lower perceived

risk. • Additional indices can help investors to develop a broader

picture of the potential risk of corruption by country, e.g. – Global Competitiveness Index – TI Global Corruption Barometer (World Economic Forum) – Worldwide Governance Indicators (World Bank)

Globally, the US has fined the greatest number of companies within the OECD countries (OECD Bribery report, 2014) • 68% of these fines have been paid by the extractives and

industrials sectors. • This appears to have been driven by specific initiatives:

– an investigation into the Bonny Island LNG Facilities (Nigeria)

– a focus on corruption in Oil & Gas companies – the UN Oil for Food Program (Iraq)

US FCPA enforcement actions by sector (2009- 2014)

Source: US DOJ, US SEC, Morgan Stanley Research

Companies can invest in measures and strategies on corruption to reduce the potential risk. • Overall, we believe the most sustainable companies:

− Have clear policies on bribery, including risk assessments and internal monitoring

− Invest in developing a strong culture − Provide employee training.


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March 15, 2016

Carbon Capture and Storage: A degree of progress? May 28, 2015

Carbon capture and storage is very expensive and there is still a long way to go in terms of deployment. However, there is evidence of some progress being made towards this technology helping limit global warming to a 2 degree scenario.

What does CCS offer? A recap: As a clean technology, CCS offers a number of benefits: i. Functionality for a number of industries (power,

cement, iron and steel) ii. Net negative emissions when combined with

biofuels iii. Ability to use fossil fuels without GHG emissions.

Country Identify Evaluate Define Execute Operate TotalUNITED STATES - 4 5 3 7 19 CHINA 5 2 4 - - 11 CANADA - 1 1 3 2 7 UNITED KINGDOM - 3 3 - - 6 AUSTRALIA - 2 - 1 - 3 KOREA - 2 - - - 2 NORWAY - - - - 2 2 ALGERIA - - - - 1 1 BRAZIL - - - - 1 1 NETHERLANDS - - 1 - - 1 SAUDI ARABIA - - - 1 - 1 UNITED ARAB EMIRATES - - - 1 - 1 Total 5 14 14 9 13 55

Large- Scale Integrated CCS Projects (LSIPs) by project lifecycle and region/ country

Source: Global CCS Institute

CCS is 1 of 4 clean technologies identified by the IEA as making “some progress.” • The Boundary Dam, the world’s first coal-fired commercial power plant equipped with CCS, came on-stream in

October 2014.

Can China lead CCS development? • China has been investing in CCS technologies – 11 large-scale projects are in the pipeline, which represents 20% of

all projects globally. • According to the IEA, China will account for one-third of all CO2 captured globally between 2015 and 2050. However,

challenges to full-scale deployment remain, in our view.


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March 15, 2016

Technology Software & Services: The valuation impact of human capital April 30, 2015

Human capital is vital for the Software and Services sector

• Personnel accounts for c. 60% of operating costs. • Particularly important in US and Europe

– less competition for human capital in Japan

It can impact company valuations in four ways • Wage inflation leading to higher operating costs. • Failure to recruit and retain employees can lead to

growth constraints. • Costs associated with employee turnover, training and

recruitment. • Productivity and cost impacts linked to relatively low/high

employee engagement.

Operating Costs per Employee 2010-2014

US Softw are +8%

US Services 0%

Personnel Costs per Employee 2010-2014

EU Softw are +3%

EU Services -8%

Employee cost inflation has been higher for Software versus Services

Software companies are likely to see higher wage inflation than IT Services companies

• Software: need for continuous innovation; intense competition for most talented employees.

• Services: shift towards offshoring helps companies manage personnel costs.

Company actions to manage human capital • Stock-based compensation. • Incremental benefits such as flexible working hours,

vacation, innovation projects. • Offshoring / outsourcing.

Source: Company data, Morgan Stanley Research


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March 15, 2016

Technology Hardware: Why ‘conflict minerals’ in electronics matter April 16, 2015

Statistics on conflict mineral concentration, “criticality”, production, and refining

Conflict minerals bring geopolitical/business risks into supply chain and can impact stock valuations. • Companies with conflict minerals in their products (such as electronics components/devices) are potentially exposed to

reputational damage and revenue losses from supply disruption, as well as to greater operational costs due to increased regulation and stricter customer demands.

As part of Dodd-Frank, the SEC required the first company disclosures on conflict mineral sourcing in 2014, mobilising not only US companies but also consequently many of their suppliers worldwide.

• European Parliament voted on regulation in May 2015. • Cost to comply with such disclosure averages up to 1% of revenues in the first year, followed by less than 0.2% of

revenues in subsequent years. • Impact on the company’s reputation is likely worth far more than cost to comply, thus providing the cost-benefit rationale

for implementing a conflict minerals monitoring programme.

Mineral

Concentration on printed circuit board

(parts per mn)

Criticality scores* % of Global Mineral Production in Conflict

Regions of Africa (as of 2012)

# of Global Mineral Smelters/Refiners

% of Global Mineral Smelters/Refiners

certified “conflict free” or committed to be Supply risk

Environmental implications

Vulnerabil ity to supply restriction

Tantalum ~102 ppm medium medium medium 37.1% 68 68%

Tin ~104 ppm medium low high 2.2% 132 45%

Tungsten n/a low low medium 1.5% 95 24%

Gold ~102 ppm low critical high 3.7% 139 53%

*Note: The original score is a scale of 0 to 100, where 100 indicates the highest criticality. The four categories here approximately correspond to four quarti les interpreted from a color-coded chart in the academic article: 0-25 (low), 25-50 (medium), 50-75 (high), 75-100 (critical). This represents just one of many methodologies for determining criticality. Source: Yale University Center for Industrial Ecology, USGS Minerals Yearbook, US Chamber of Commerce, Conflict Free Sourcing Initiative, Morgan Stanley Research


21


March 15, 2016

Sustainable Economics: The bitter aftertaste of sugar March 18, 2015

Different sugar consumption tracks for DM/EM • Evidence that sugar consumption is beginning to fall in DM. • However, signs that it will continue to increase in EM due to

population trends and rising sugar preference.

Direct and indirect costs of obesity and Type II diabetes • It’s not clear whether sugar is directly linked to the rise of “diabesity”

but it has contributed to rising calorie imbalances. • Total costs ~ 1-2% of a country’s GDP. • Direct costs include medication, medical devices and healthcare

consultations. • Indirect costs linked to increased mortality, lost productivity at work

and reduced workforce.

Economic simulations to 2035 • Base case sugar scenario: GDP growth in OECD countries averages

1.8% p.a. over the next 20 years, vs. 2.3% p.a. estimate by OECD. • Largest cumulative output losses in Chile, the Czech Republic,

Mexico, the US, Australia and New Zealand. • Smallest cumulative output losses in Japan, Korea, Switzerland,

France and Italy.

0

2

4

6

8

10

12

14-250

0

250

Cent

ral A

mer

ica

Nor

ther

n Am

eric

aEa

st. E

urop

eCa

ribbe

anSo

uth

Am.

Sout

hern

Afr

ica

Nor

ther

n Af

rica

Oce

ania

Wes

tern

Eur

ope

Sout

hern

Asia

Nor

ther

n Eu

rope

East

ern

Afric

aSo

uth-

East

ern

Asia

Mid

dle

Afric

aCe

ntra

l Asia

Wes

tern

Asia

Wes

tern

Afr

ica

Sout

hern

Eur

ope

East

ern

Asia

Sugar Gap (kcal/pp, reverse lhs)

In regions where sugar consumption is higher than justified by income levels, diabetes tends to be high too

The obesity & diabetes epidemic poses threat to future economic growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

High Sugar Base Case Low Sugar

Source: FAO, IDF, Morgan Stanley Research

Source: Morgan Stanley Research estimates


22


March 15, 2016

Feedback from Roundtables and Meetings

Social Risks to Oil & Gas Companies April 21, 2015

* Companies’ licence to operate depends heavily on relationships w ith local communities and stakeholders – sabotage to processes or theft can result from poor relationships.

* Social risks can include unemployment rate, level of infrastructure and social services and capacity of local suppliers.

* Negative media campaigns, NGO action or disruptions could be signs for investors to consider w hen identifying projects at risk.

Social Progress Index May 12, 2015

* Aims to provide a tool for assessing progress in basic human needs, foundations of w ellbeing and opportunity across 133 countries – based on 12 different components.

* GDP alone doesn’t explain social progress: Social Progress Index is the only tool w hich exclusively looks at social and environmental factors.

* European Commission is investigating if it should adopt the Social Progress Index to assist w ith regional development. It has already been adopted by national and regional governments.

Tech Sector Field Trip Feedback May 22, 2015

* Four technology companies told us how they’re addressing the many environmental/social impacts and opportunities of their products and supply chains.

* The most frequently recurring theme w as people management, both of diversity in the talent pool as w ell as of competitive talent retention.

* Company boards tend to be interested in sustainability issues around enterprise risk management, natural resource use, supply chain management, and stakeholder engagement.0

El Niño December 8, 2015

*We are currently experiencing a stronger than usual El Niño, w ith only the 1982 and 1997 El Niño event ranking stronger since 1980.

*In Agriculture, palm oil has historically been the most sensitive to El Niño w ith a more variable impact on grain and sugar.

*Warmer temperature in the United States has impacted both the Utilities and Speciality Retailers and Department Stores.

*The risk to the insurance sector comes from the impact on US hurricane activity and crop insurance.

ESG Risks in Global Apparel Supply

Chain April 13, 2015

* Follow ing Rana Plaza tragedy in Bangladesh, focus on improving safety and w orking conditions in garment factories around the country: 1500 facilities inspected and corrective measures in place.

* How ever, the industry remains ineff icient: technology and machinery is old; back off ice functions too manual; illegal overtime and unauthorised subcontracting still commonplace.

* Investors must continue to engage w ith companies – The Higg Index launched by Sustainable Apparel Coalition is a useful tool.

Farm Animal Welfare (BBFAW) March 12, 2015

* Companies are increasing their communication on this subject.

* How ever it remains an “immature” business w ith the overall level of reporting low .

* Challenges faced include price competition, complexity of supply chains and lack of consensus among NGOs and companies regarding KPIs.

* Farm animal w elfare could be a good proxy for more general supply chain issues.


23


March 15, 2016

Sustainability Themes


24


March 15, 2016

Sustainability Themes – Top Picks Globally About 800 stocks identified as universe of global stocks exposed to seven sustainability themes

All themes present challenges and opportunities. We explore how these themes enable companies to drive growth and returns.

1. Climate change – the challenge to achieve the 2 degree scenario 2. Water scarcity – demand to exceed supply by 40% within 16 years 3. Waste management – urbanisation to drive waste generation to 2.2bn tons by 2025 4. Food availability – agriculture under strain due to population growth and rising incomes 5. Health & wellness – ill health a growing burden while safety regulation increases 6. Improving lives – breaking down inequalities and raising standards of living 7. Ageing population – specific needs and demands of over-65s Morgan Stanley’s Quants team analysed the ~800 stocks with positive exposure to at least one sustainability theme versus the total population of stocks. Overall, those with positive exposure tended to have: lower beta, lower ROE volatility, higher ROE, higher long term EPS expectations, more favourable sentiment and higher valuations.

Top Picks Globally: stocks from each region that offer investors:

• Exposure to at least one of seven sustainability themes (>50% of revenues or EBITA); and • An attractive risk-reward on a 12-month time horizon (i.e. rated Overweight and >10% upside to PT).



25


March 15, 2016

Sustainability Themes – Top Picks Globally

Company Name Country Primary Analyst Rating Market Cap $mn Company Description

SolarCity Corp US By rd, Stephen OW 2,559 Designs and installs Solar energy Systems

Sprouts Farmers Market Inc US Sinisi, Vincent OW 4,246 Specialty retailer of natural and organic food focusing on health and wellness. Tesla Motors Inc. US Jonas, Adam OW 27,384 Tesla designs, manufacturers and sells high performance electric vehicles.

Thermo Fisher Scientific Inc. US Beuchaw, Steve OW 52,606 Markets customers in research, diagnostics, industrial, and applied markets a complete range of high-end analytical instruments Well Tower ltd US Malhotra, Vikram OW 23,185 Inv ests in Senior Housing and Health Care Real Estate

ADECOAGRO S.A. Argentina Martinez de Olcoz Cerdan, Jav ier OW 1,574 Latam Farming based on Land transformation, diversification and commodity

Entel Chile Chile Morin, Michel EW 2,007 Telecommunications services

Estacio Participacoes SA Brazil Martinez de Olcoz Cerdan, Jav ier OW 1,334 Post secondary schools

Kroton Educacional, S.A. Brazil Martinez de Olcoz Cerdan, Jav ier OW 5,181 Educational provider

OdontoPrev Brazil Martinez de Olcoz Cerdan, Jav ier OW 1,629 Dev elops customised dental plans for corporate clients

Enagas Spain Dores, Carolina OW 6,853

Stagecoach Group PLC UK Vermeulen, Annelies OW 2,213 Operates UK Rail franchises South West Trains

UCB S.A. Belgium Guy on- Gellin, Nicolas OW 15,054 Global Biopharma company focused on severe disease Veolia Env ironnement France Turpin, Emmanuel OW 12,820 Prov ider of Environmental management services Zumtobel AG Austria Carrier, Lucie OW 716 Prov ider of Environmental management services

Dai-ichi Lif e Insurance Japan Ban, Hidey asu OW 14,511 Lif e Insurance company

Hitachi High-Technologies Japan Yoshikawa, Kazuo OW 3,870 Prov ides tools for semiconductor production, mainly process control Sumitomo Chemical Japan Watabe, Takato OW 7,104 Crop protection; products for control of infectious diseases Terumo Japan Hay ashi, Ryotaro OW 14,245

Beijing Originwater Technology China Lee, Simon OW 5,756 Principally engaged in Sewer treatment

CSPC Pharmaceutical Group China Hu, Yolanda OW 4,734 One of the largest pharmaceutical groups in China. Bulk drug products include vitamin C, penicillin G and 7-ACA. Perusahaan Gas Negara Indonesia Maheshwari, May ank OW 4,832 Leading gas pipeline in Indonesia Lupin Ltd India Baisiwala, Sameer OW 12,164 Generic play er In Anti TB, AI CVS (Respiratory) Towngas China China Lee, Simon EW 1,514 Natural Gas pipeline company

Top Sustainability Picks in the US, LatAm, Europe, Japan and Asia-Pacific



26


March 15, 2016

ESG Integration: Framework


27


March 15, 2016

Embedding Sustainability into Valuation – S+R Framework

We developed a Global Valuation Framework… • It supplements the analysis of financial capital with an evaluation of governance and three other types of capital:

natural, human and social. • By better understanding the ESG risks and opportunities that a company faces, we believe investors can improve their

investment decisions.

For 29 global sectors: • We outline the materiality of ESG risks and opportunities and illustrate how individual ESG factors can affect the various

value drivers of an analyst’s valuation model. • Governance issues are arguably relevant for all companies, no matter which industry group. Standard E & S issues

include employee satisfaction, appropriate tax payments and ethical conduct. • However, we stress that not all ESG factors are relevant to all companies. We believe it can be misleading to focus on

criteria that have no material impact on a company’s value.

Example: Autos (see diagram on next page) • Environmental legislation drives R&D in the autos sector, although the oil price may change consumers’ economic

urgency to purchase expensive technologies. • Electric vehicles have long been an opportunity for auto manufacturers to gain positive exposure to the climate change

theme; reducing the cost of production of an electric vehicle while increasing its range are the two key challenges. • Product safety and supply-chain management are also value drivers.


28


March 15, 2016

Embedding Sustainability into Valuation – Example: Autos sector TRADITIONAL ANALYSIS S+R ANALYSIS

Economic activity; globalisation; model

penetration.

Volume of units sold

Development of products that reduce costs for

customers and ensure compliance with legislation.

Environmental Impact

Governance

Product recalls could result in lost volumes over the

short and long term.

Product Safety

Supply disruption and reputational risk could affect

volumes.

Supply Chain

Lost revenues/contracts post discovery of bribery

and corruption.

Ethics

x

Inflation; competitive dynamics; FX; mix.

Revenue per unit

Technically advanced products may command a

higher price point. Environmental Impact

Product recalls may require selling prices to be

lowered.

Product Safety

-

Number of employees; wage inflation; fuel costs; maintenance costs.

Operating costs

R&D expenditure to ensure technically advanced

products.


Fines payable. Ethics

Higher costs to improve supply-chain sustainability. Supply Chain

-

Investment in production facilities.

Capital Investment Investment in environmental technology to make

products more fuel efficient.


-

Current tax rates; countries of operation.

Tax Appropriate tax payments to local governments.

Ethics

-

Interest rates; amount of debt. Interest

= FREE CASH FLOW

x

Number of years of operation

Governance ÷

Equity/debt split; cost of capital

Discount Rate All risks above.

Overall ESG Risk

EQUITY VALUE



29


March 15, 2016

ESG Integration: Examples


30


March 15, 2016

Sector Title ESG Content Date Autos Autos & shared mobility: The First Autonomous City Analysis of the impacts of the potential application of fully autonomous transport 01- Mar- 16

Banks Cielo: View s from our S+R team Analysis of the impacts of the corporate governance risks 19- Feb- 16

Transport Latin America; Thoughts on the Zika virus Analysis of the impacts of the Zika virus 11- Feb- 16

Consumer Global consumer staples: Executive compensation in EU and US Executive compensation report 09- Feb- 16

Autos Rethinking CAFE (Corporate average fuel economy) Analysis of the impacts of shared mobility and automated and autonomous driving on CAFE 02- Feb- 16

Pharma Zoetis: Low ering EPS to reflect new tax guidance – potential risk to other MNCs Analysis of the impacts of the European ruling regarding tax incentives in Belgium 12- Jan- 16

Autos Volksw agen: Too many uncertainties Analysis of the impacts of the emissions scandal 12- Jan- 16

Consumer China Anti-graft: A necessary evolution Analysis of the impacts of the Chinese anti-graft campaign 15- Dec- 15

Consumer retail N. America Insight: The Impact of Rising Wages Analysis of the impacts of rising w ages 02- Dec- 15

Mining BHP Billiton Limited: Samarco – The 9 main Questions so far, some w ith Answ ers Analysis of the impacts of the recent mining incident 17- Nov- 15

Telecom TalkTalk Telecom Group PLC: Grow ing vulnerability, low ering to EW Analysis of the impacts of the recent cyberattack 28- Oct- 15

Pharma Global Insight: Navigating an environment w ith greater drug price scrutiny Analysis of the impacts of greater drug price scrutiny 01- Oct- 15

Retail UK Food Retail: UK living w age – Moving into focus Analysis of the impact of the National Living w age for food retailers 18- Sep- 15

Economics Global issues: Could demographics reverse three multi-decade trends? Analysis of the impact of demographics on the economy 15- Sep- 15

Retail North America Insight: Sustainability Report: Raising NKE, HBI and VFC Price Targets Introduction of Sole Sustainability Index for North American Branded Apparel and Footw ear 20- Aug- 15

Utilities & Mining Coal: Divestment Policy Gathering Steam? Analysis of the potential impact of the coal divestment campaign 05- Jun- 15

Mining Antofagasta (ANTO.L): A pricey standstill – dow ngrade to UW Rising environmental scrutiny to increase capital intensity and reduce volume CAGR. 28- Apr- 15

ESG Integration in Practice Highlighting research from our global sector teams that demonstrates how ESG risks and opportunities can impact business models and analyst investment cases

https://ny.matrix.ms.com/eqr/article/webapp/507e4b0a-cec1-11e5-afc8-52a4c02c7a61?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/f6a67924-d652-11e5-91c9-c40df6a8c86d?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/ef9d63e0-caae-11e5-b076-6e07368147d0?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/b21c786c-cb21-11e5-b076-6e07368147d0?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/d7c9182c-c6b2-11e5-8f59-10c6973759e0?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/0f41c0ce-b939-11e5-8272-fd6eab4cb687?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/79f78412-a011-11e5-b1e8-888b48217db6?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/c947c5f0-31e3-11e5-9f95-2888852d595c?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/8997c410-6941-11e5-a8b6-1e961afcc658?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/c126d660-8ca4-11e5-8395-83b213a79d96?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/a3192b00-7890-11e5-844a-852409858690?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/0d73f21c-42c4-11e5-b8c7-572819d5dbbb?t=1443747161:3048:23202:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/e0fdf5f8-5ab9-11e5-b0d2-036c3d7f2ef1?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/276a7a70-5bc3-11e5-b0d2-036c3d7f2ef1?t=1442561067:27:25351:vmias1106661&m=1&ch=Outlook%20Blastmailhttps://ny.matrix.ms.com/eqr/article/webapp/45ada064-ef50-11e4-aeba-9bba02fefb2a?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/45ada064-ef50-11e4-aeba-9bba02fefb2a?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/945b9402-09ca-11e5-b6c1-c9c1f4669398?t=1433496292:250:27069:vmias1106661&m=1&ch=Outlook%20Blastmailhttps://ny.matrix.ms.com/eqr/article/webapp/9ee81f6a-de8e-11e4-9cfb-6eb77350c59b?ch=rpext


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March 15, 2016

ESG Valuation Summaries Highlighting research from our global sector teams that includes a dedicated page of stock-specific ESG analysis

Example: Engie (Utility sector)

Source: Morgan Stanley Research Mapping the rebound in 2016 EPS Stock price as of 14th March 2016: ENGIE.PA (14.12 EUR)

https://www.concursolutions.com/default.asphttps:/ny.matrix.ms.com/eqr/article/webapp/da790584-0388-11e5-8e41-5c8b215192b5?ch=rpext%20-%200#0


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March 15, 2016


Sector Title Date Utilities EU Utilities: Introducing ESG Analysis 16- Feb- 16

Utilities US Regulated Utilities – Introducing ESG analysis 07- Dec- 15

Utilities Japanese Utillities: J-POWER – Reaff irm Standing as Core Holding in Utilities 18- Nov- 15

Utilities Mexican Utilities: IEnova: Fine-Tuning Estimates and Raising PT to M$87; Remain OW 10- Nov- 15

Utilities Brazil Electric Utilities: Brazil Hydrology Monitor 10- Nov- 15

Utilities Chinese Coal Utilities: Higher-than-expected tarif f cut, accelerated pow er reform; unfavourable bias tow ards coal IPPs 30- Oct- 15

Utilities Australia Utilities: AGL Energy,a balanced view ? 14- Oct- 15

Utilities Australia Regulated Utilities: Asia Insight: Duck season 28- Sep- 15

Utilities European Utilities: GDF Suez – Mapping the rebound in 2016 EPS 03- Jun- 15

https://ny.matrix.ms.com/eqr/article/webapp/d84b0fd0-a34e-11e5-bd7e-4cae4c22269c?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/c60cf514-9abf-11e5-8047-397379869f0c?ch=rpexthttps://ny.matrix.ms.com/eqr/article/webapp/bbf4f55e-8e62-11e5-8395-83b213a79d96?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/c60cf514-9abf-11e5-8047-397379869f0c?ch=rpexthttps://ny.matrix.ms.com/eqr/article/webapp/e7ef0a82-89d0-11e5-bc03-54f1725641f5?ch=rpext#0https://ny.matrix.ms.com/eqr/article/webapp/92000cd2-82d9-11e5-b1e2-7c8fa03ee8f4?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/54af832c-8710-11e5-bc03-54f1725641f5?t=1447203352:1824:4473:vmias1106669&m=1&ch=CDF%20Research%20ISG%20-%200#0https://ny.matrix.ms.com/eqr/article/webapp/f3d9820c-70ab-11e5-80d0-b5c0b8f5d67b?ch=rpext#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/bb5d0432-7153-11e5-80d0-b5c0b8f5d67b?t=1446143168:2924:17420:vmias1106666&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/f3d9820c-70ab-11e5-80d0-b5c0b8f5d67b?ch=rpext#0https://ny.matrix.ms.com/eqr/article/webapp/afd4cd54-5a9a-11e5-b0d2-036c3d7f2ef1?t=1443398481:46:13834:vmias1106668&m=1&ch=CDF%20Research%20ISG#0https://ny.matrix.ms.com/eqr/article/webapp/da790584-0388-11e5-8e41-5c8b215192b5?ch=rpint#0


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March 15, 2016


Sector Title Date Retail Brands: Investor roadmap on governance and sustainability 17- Feb- 16

Retail Europe Food Retail – Measure for measure: ESG health check 12- Jan- 16

Retail Europe Retail – Spotlight on sustainability 18- Dec- 15

Retail South Korea Retail – Not an easy year ahead 05- Dec- 15

Retail US Retail, Softlines: Introducing our ESG framew ork 02- Dec- 15

Retail Japan Retail – ESG Integration: Still Before Daw n, But Green Shoots Are Everyw here 13- Nov- 15

Retail US Retail, Food and Drug – Introducing ESG Framew orks Across Our Coverage Universe 12- Nov- 15

Retail China Retail / Internet: Asia Insight: Big-box retail: Big transformation required; prefer H to A shares; initiate on Suning and Yonghui at Underw eight 09- Nov- 15

Retail US Hardline/ Broadline Retail: Q3 Preview : No Margin For Error 09- Nov- 15

Retail Chile Retail – The last resort for LatAam consumer? Stay OW on FAL; Upgrading CEN to EW 09- Oct – 15

https://ny.matrix.ms.com/eqr/article/webapp/5aa16066-a40c-11e5-bd7e-4cae4c22269c?t=1455732995:1781:2691:vmias1106669&m=1&ch=autobhttps://ny.matrix.ms.com/eqr/article/webapp/a61e1268-8c39-11e5-8395-83b213a79d96?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/4af9fd5a-8c36-11e5-8395-83b213a79d96?ch=rpexthttps://ny.matrix.ms.com/eqr/article/webapp/bbf4f55e-8e62-11e5-8395-83b213a79d96?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/3b93c3cc-85a2-11e5-b1a8-d32caa51b63d?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/4f9caa62-878e-11e5-bc03-54f1725641f5?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/f912d6d4-7f1e-11e5-bfb0-9e21ff0ce597?t=1447315886:412:24348:vmias1106654&m=1&ch=Outlook%20Blastmail%20-%200#0https://ny.matrix.ms.com/eqr/article/webapp/fe32db76-6bde-11e5-985a-870b71bb10aa?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/fe32db76-6bde-11e5-985a-870b71bb10aa?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/19299e30-7763-11e5-844a-852409858690?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/31f24194-04c0-11e5-8e41-5c8b215192b5?ch=rpext#0


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March 15, 2016


Sector Title Date Transport Europe Bus & Rail, 2016: A bumpy road ahead 30- Nov- 15

Airlines Australian Airlines – Exploring ESG risks for Australian Airlines 25- Nov- 15

Airlines US Airlines: Aircraft Leasing: Introducing ESG Framew orks Across Our Leasing Coverage 19- Nov- 15

Airlines Chinese Airlines – What If a Merger Materializes? 16- Nov- 15

Airlines Japan Airlines – Raise Our Forecasts: Remain OW on Undervalued JAL; ANA's Strong Earnings Grow th Priced In 12- Nov- 15

Airlines European Airlines: PostNL N.V – A subdued outlook, balanced by valuation 04- Nov- 15

Airlines US Airlines: Is There Still Upside Post the Move Up? 02- Nov- 15

Airlines European Airlines: easyJet – Valuation is attractive, but strategy updates are important at the FY15 22- Sep- 15

Airlines European Airlines: International Consolidated Airlines Grp: More Runw ays than Heathrow – PT €10 22- Sep- 15

Airlines European Airlines: Ryanair – Getting Better Again: Net Profit €1.5bn+ in FY17 22- Sep- 15

Transport European Airlines: bpost SA – Valuation uncompelling given uncertainty over mail volume declines 21- Sep- 15

Airlines Turkish Airlines: Prefer Airlines to Autos 10- Sep- 15

Airlines European Airlines: A Sense of Déjà vu 15- Jun- 15

https://ny.matrix.ms.com/eqr/article/webapp/786c6942-8152-11e5-a6ac-67d44247d9af?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/af976a02-8422-11e5-b1e2-7c8fa03ee8f4?ch=rpint%20-%200#0https://ny.matrix.ms.com/eqr/article/webapp/099bbf28-8ca0-11e5-8395-83b213a79d96?ch=rpint%20-%200#0https://ny.matrix.ms.com/eqr/article/webapp/7448a83c-80a1-11e5-a6ac-67d44247d9af?ch=rpexthttps://ny.matrix.ms.com/eqr/article/webapp/fd318878-86a3-11e5-bc03-54f1725641f5?ch=rpext%20-%200#0https://ny.matrix.ms.com/eqr/article/webapp/bdffb3ea-41b2-11e5-b8c7-572819d5dbbb?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/c3609b90-7dc3-11e5-bfb0-9e21ff0ce597?ch=rpext#0https://ny.matrix.ms.com/eqr/article/webapp/85b7bb26-10d0-11e5-a550-395e1dc854ab?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/6cef4014-5ba3-11e5-b0d2-036c3d7f2ef1?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/85b7bb26-10d0-11e5-a550-395e1dc854ab?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/d5aa804a-603b-11e5-9cda-2aec5fb33735?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/85b7bb26-10d0-11e5-a550-395e1dc854ab?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/2b21d094-5d0f-11e5-b0d2-036c3d7f2ef1?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/85b7bb26-10d0-11e5-a550-395e1dc854ab?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/2ab211f6-41b1-11e5-b8c7-572819d5dbbb?ch=rpinthttps://ny.matrix.ms.com/eqr/article/webapp/22de9914-5150-11e5-90c5-15fcfeb61085?ch=rpint#0https://ny.matrix.ms.com/eqr/article/webapp/85b7bb26-10d0-11e5-a550-395e1dc854ab?ch=rpint#0


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Appendix


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ESG Integration Collaboration with sector teams

SRI focused reports analysing the impact of ESG issues on valuation

Inclusion of ESG analysis in reports by stock analysts

Thematic Investing Seven Global Sustainability Themes: Climate Change, Water, Waste, Food Availability, Health & Wellness, Improving Lives, Demographics Identification of global stocks exposed to themes: Survey of analysts across the Americas, EMEA and Asia-Pacific Attractive entry point: Overweight rated with at least 10% upside to Price Target

Communications Field Trips: Bangladesh, Light & Building Fair, Norsk Hydro Smelter, Tech Bus Tour

Expert Roundtables: Retail Supply Chain, Oxfam, Employee Satisfaction, Social Progress Index

Company Roadshows: BASF, BMW, Burberry, SAP, BT Group, Swiss Re, HSBC Stock Analyst meetings: Exec Comp, ESG Valuation Frameworks, Stranded Assets

MS Equity Research – Our approach to Sustainable + Responsible Investing


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ESG Communications

Field Trips

• 3-day trip to Bangladesh to understand developments in the Ready Made Garment industry

• Light & Building Fair, Germany • Palm Oil Field Trip, Asia • Norsk Hydro trip to visit energy efficient

smelter • Tech Bus Trip in San Francisco

ESG Communication with Investors

Expert Speakers

• Global business initiative on human rights

• Carbon Tracker: Stranded Assets • Oxfam: Land Policies in the Food and

Beverage sector • Social Progress Index

• London Business School: Employee Satisfaction and Stock Returns

Corporate Roadshows

• Companies include BASF, Burberry, EADS, SAP, Swiss Re, AXA, Nordea, HSBC, Nestle, BMW, FEMSA and G4S.

Stock Analyst Meetings

• Executive Compensation (US Telcos, US Healthcare)

• Stranded Assets (EU Oil and Gas) • ESG Frameworks (Utilities, Retail,

Airlines, Mining, Oil & Gas).


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S+R Investment Research – Weekly news flow

SEPT EM BER 4 , 2 0 1 5

Sustainability Spotlight: This Week’s Global Research, News and Events Download the complete report Our weekly digest highlights the latest Morgan Stanley global ESG research and meetings, along with key sustainability news articles and upcoming external events. This week… in a new video, we discuss how far banks are through the ~$260 bn litigation process and how banks have changed models, processes and incentivisation since the f inancial crisis. This follow s from our recent report w ith the banks team w hich explores how the banks are responding post litigation. A stronger than usual El Niño is expected in the coming months. We published a report w ith the key takeaw ays of last w eek's call w ith Scott Yuknis of the Climate Impact Company and Morgan Stanley analysts discussing the effects of El Niño, w ith a focus on the implications for global Agricultural markets and the Agricultural and Insurance sectors. In Agricultural markets, palm oil prices have been the most sensitive. The high concentration (85%) of global palm oil production in Malaysia and Indonesia, w hich tend to experience drought during El Niño, renders the market vulnerable to supply disruption. Finally, shareholder activism is becoming an important driver for the industrials group. Morgan Stanley's Capital Goods team explores w hat is behind this trend and the criteria activist investors typically look for in a new report. The team's conversations w ith activist investors suggest key criteria include business focus, returns, cost, value and leverage potential; European Capital Good stocks are then assessed on these 5 metrics. Overall, operationally scope for change is positive but outcomes for investors can be quite mixed. European Cap Goods Activist Scorecard Ranking

0%10%20%30%40%50%60%70%80%90%

100%

M ORGAN STANLEY RESEARC H

MORGA N S TA NL EY RES EA R C H Global S+R Team: Jessica Alsford, CFA [email protected] +44 (0) 20 7425 8985

Eva Zlotnicka Ev [email protected] +1 212 761 4075 Victoria Chapelow [email protected] +44 (0) 20 7425 6651 Sustainable Economics Carmen Nuzzo [email protected] +44 (0) 20 7677 0209


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Disclosures Stock prices as of March 14th, 2016: ADECOAGRO S.A. (12.91 USD), Agilent (39.02 USD), Beijing Originwater Technology (35.70 cny), bioMerieux (100.20 EUR), Bureau Veritas (19.00 EUR), Constellation Brands Inc (141.90 USD), CSPC Pharmaceutical Group (6.09HKD), Dai-ichi Life Insurance (1.453 JPY), Delta Air Lines (47.89 USD), Enagas (26.43 EUR), Entel Chile (5.730 CLP), Estacio Participacoes SA (13.50 BRL), Estee Lauder (93.83 USD), Hitachi High-Technologies (3.180 JPY), Intertek (3,097 GBp), Kroton Educacional, S.A.(11.15 BRL), Lupin Ltd (1.722.90 INR), Mondelez (42.24 USD), Nestle (71.50 CHF), OdontoPrev (10.70 brl), PerkinElmer (48.52 USD), Perussahaan Gas (2.615 INR), Qiagen (20.10 EUR), Ryanair (17.45 EUR), SGS (2,025 CHF), SolarCity Corp (26.93 USD), Spirit Airlines (47.15 USD), Sprouts Farmers Market Inc (28.06), Stagecoach Group PLC (258.60 GBP), Sumitomo Chemical (514 JPY), Terumo (4.035 JPY), Tesla Motors (215.15 USD), Thermo Fisher (139.77 USD), Towngas China (4.29 HKD), UCB. SA (69.11 EUR), Veolia Environment (20.83), WellTower Inc. (63.13 USD), WhiteWave (39.93 USD), Zumtobel AG (14.84 EUR), Morgan Stanley & Co. International plc, authorized by the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affi l iates. As used in this disclosure section, Morgan Stanley includes RMB Morgan Stanley (Proprietary) Limited, Morgan Stanley & Co International plc and its affi l iates. For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. For valuation methodology and risks associated with any price targets referenced in this research report, please contact the Client Support Team as follows: US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169; Singapore +65 6834-6860; Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Victoria Chapelow. Unless otherwise stated, the individuals l isted on the cover page of this report are research analysts. Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies. Important US Regulatory Disclosures on Subject Companies As of February 29, 2016, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: ADECOAGRO S.A., Anglo American, Anhui Conch Cement Co. Ltd, Burear Veritas S.A., CEMEX Latam Holdings S.A., Credit Suisse Group, Deutsche Bank, Enagas, Estee Lauder Companies Inc, Goldman Sachs Group Inc, HeidelbergCement AG, J.P.Morgan Chase & Co., Kroton Educacional, S.A., LafargeHolcim, Mondelez International Inc, Nestle, Qiagen, Ryanair, SolarCity Corp, Stagecoach Group PLC, Tesla Motors Inc., Thermo Fisher Scientific Inc., Veolia Environnement, Welltower Inc., WhiteWave Foods Co. Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Bank of America, Credit Suisse Group, CSPC Pharmaceutical Group, Delta Air Lines, Inc., Deutsche Bank, Goldman Sachs Group Inc, HSBC, J.P.Morgan Chase & Co., Spirit Airl ines Inc., Tesla Motors Inc., Thermo Fisher Scientific Inc., UBS Group AG, Welltower Inc.. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Anglo American, Bank of America, Barclays Bank, Credit Suisse Group, Dai-ichi Life Insurance, Delta Air Lines, Inc., Deutsche Bank, Goldman Sachs Group Inc, HeidelbergCement AG, Hitachi High- Technologies, HSBC, Italcementi Spa, J.P.Morgan Chase & Co., LafargeHolcim, Ryanair, Spirit Airlines Inc., Standard Chartered, Terumo, Tesla Motors Inc., Thermo Fisher Scientific Inc., Welltower Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Agilent Technologies, Inc, Anglo American, Antofagasta, Bank of America, Barclays Bank, BHP Bill iton Limited, Bureau Veritas S.A., Buzzi Unicem S.p.A., Cementos Argos S.A., Constellation Brands Inc, Credit Suisse Group, CSPC Pharmaceutical Group, Dai-ichi Life Insurance, Delta Air Lines, Inc., Deutsche Bank, Enagas, ENGIE, Estacio Participacoes SA, Estee Lauder Companies Inc, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HeidelbergCement AG, Hitachi High-Technologies, HSBC, Italcementi Spa, J.P.Morgan Chase & Co., Kroton Educacional, S.A., LafargeHolcim, Lundin Mining Corp., Lupin Ltd., Mondelez International Inc, Nestle, PerkinElmer Inc., Perusahaan Gas Negara, Rio Tinto Ltd, Ryanair, SGS S.A., Spirit Airl ines Inc., Standard Chartered, Sumitomo Chemical, Terumo, Tesla Motors Inc., Thermo Fisher Scientific Inc., Towngas China, UBS Group AG, UCB S.A., Veolia Environnement, Welltower Inc., WhiteWave Foods Co, Zumtobel AG. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from ADECOAGRO S.A., Agilent Technologies, Inc., Anglo American, Bank of America, Barclays Bank, BHP Bill iton Limited, Constellation Brands Inc, Credit Suisse Group, ENGIE, Dai-ichi Life Insurance, Delta Air Lines, Inc., Deutsche Bank, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HeidelbergCement AG, HSBC, J.P.Morgan Chase & Co., LafargeHolcim, Mondelez International Inc, Nestle, Qiagen, Rio Tinto Ltd, Ryanair, Spirit Airl ines Inc., Standard Chartered, Thermo Fisher Scientific Inc., Towngas China, UBS Group AG, UCB S.A., Veolia Environnement, Welltower Inc..


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Disclosures

Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Agilent Technologies, Inc., Anglo American, Antofagasta, Bank of America, Barclays Bank, BHP Bill iton Limited, Bureau Veritas S.A., Buzzi Unicem S.p.A., Cementos Argos S.A., Constellation Brands Inc, Credit Suisse Group, CSPC Pharmaceutical Group, Dai-ichi Life Insurance, Delta Air Lines, Inc., Deutsche Bank, Enagas, ENGIE, Estacio Participacoes SA, Estee Lauder Companies Inc, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HeidelbergCement AG, Hitachi High- Technologies, HSBC, Italcementi Spa, J.P.Morgan Chase & Co., Kroton Educacional, S.A., LafargeHolcim, Lundin Mining Corp., Lupin Ltd., Mondelez International Inc, Nestle, PerkinElmer Inc., Perusahaan Gas Negara, Rio Tinto Ltd, Ryanair, SGS S.A., Spirit Airl ines Inc., Standard Chartered, Sumitomo Chemical, Terumo, Tesla Motors Inc., Thermo Fisher Scientific Inc., Towngas China, UBS Group AG, UCB S.A., Veolia Environnement, Welltower Inc., WhiteWave Foods Co, Zumtobel AG. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: ADECOAGRO S.A., Agilent Technologies, Inc., Anglo American, Bank of America, Barclays Bank, BHP Bill iton Limited, Bureau Veritas S.A., Buzzi Unicem S.p.A., Cementos Argos S.A., Constellation Brands Inc, Credit Suisse Group, Dai-ichi Life Insurance, Delta Air Lines, Inc., Deutsche Bank, Enagas, ENGIE, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HeidelbergCement AG, HSBC, J.P.Morgan Chase & Co., Kroton Educacional, S.A., LafargeHolcim, Mondelez International Inc, Nestle, Rio Tinto Ltd, Qiagen, Ryanair, SGS S.A., Spirit Airlines Inc., Stagecoach Group PLC, Standard Chartered, Sumitomo Chemical, Tesla Motors Inc., Thermo Fisher Scientific Inc., Towngas China, UBS Group AG, UCB S.A., Veolia Environnement, Welltower Inc.. Within the last 12 months, Morgan Stanley has either provided or is providing non-securities related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: Mondelez International Inc. An employee, director or consultant of Morgan Stanley is a director of Estee Lauder Companies Inc. This person is not a research analyst or a member of a research analyst's household. Morgan Stanley & Co. LLC makes a market in the securities of ADECOAGRO S.A., Agilent Technologies, Inc., Bank of America, Barclays Bank, BHP Bill iton Limited, Constellation Brands Inc, Credit Suisse Group, Delta Air Lines, Inc., Deutsche Bank, Estee Lauder Companies Inc, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HSBC, J.P.Morgan Chase & Co., Mondelez International Inc, PerkinElmer Inc., Qiagen, Ryanair, SolarCity Corp, Spirit Airlines Inc., Sprouts Farmers Market Inc, Tesla Motors Inc., Thermo Fisher Scientific Inc., UBS Group AG, Welltower Inc., WhiteWave Foods Co. Morgan Stanley & Co. International plc is a corporate broker to Anglo American. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Morgan Stanley and its affi liates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Morgan Stanley Infrastructure Partners Fund is part of a consortium that acquired a 90% interest in Veolia Environment S.A.'s ("Veolia") UK regulated water business. Veolia has retained a 10% stake in the UK regulated water business. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of February 29, 2016) For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.


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Disclosures

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in l ine with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in l ine with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Important Disclosures for Morgan Stanley Smith Barney LLC Customers Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC or Morgan Stanley or any of their affi l iates, are available on the Morgan Stanley Wealth Management disclosure website at www.morganstanley.com/online/researchdisclosures. For Morgan Stanley specific disclosures, you may refer to www.morganstanley.com/researchdisclosures. Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the Equity Research report on behalf of Morgan Stanley. This c

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