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Unitil’s (UTL) CEO Robert Schoenberger on Q1 2016 Results – Earnings Call Transcript

Unitil Corporation (NYSE: UTL ) Q1 2016 Earnings Conference Call April 21, 2016, 02:00 PM ET Executives David Chong – Director of Finance Robert Schoenberger – Chairman, President and Chief Executive Officer Mark Collin – Senior Vice President, Chief Financial Officer and Treasurer Thomas Meissner – Senior Vice President and Chief Operating Officer Laurence Brock – Chief Accounting Officer and Controller. Analysts Peter Wernau – Wernau Asset Management Insoo Kim – RBC Capital Markets Operator Good day, ladies and gentlemen, and welcome to the Unitil Q1 2016 earnings conference call. [Operator Instructions] I’d now like to introduce your host for today’s conference Mr. David Chong, Director of Finance. Sir, please go ahead. David Chong Good afternoon, and thank you for joining us to discuss Unitil Corporation’s first quarter 2016 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our first quarter on this call. As we mentioned in the press release announcing the call, we have posted that information including a presentation to the Investors section of our website at www.unitil.com. We’ll refer to that information during this call. Before we start, please note that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding company’s financial condition, results of operations, capital expenditures and other expenses, regulatory environment and strategy, market opportunities, and other plans and objectives. In some cases, forward-looking statements can be identified by terminologies such as may, will, should, estimate, expect or believe, the negative of such terms or other comparable terminology. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties, and company’s actual results could differ materially. Those risks and uncertainties include those listed or referred to on Slide 1 of the presentation and those detailed in the company’s filings with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2015. Forward-looking statements speak only as of the date they are made. The company undertakes no obligation to update any forward-looking statements. With that said, I’ll now turn the call over to Bob. Robert Schoenberger Thanks, David. I’ll begin by discussing the highlights of our past quarter. Beginning on Slide 5 of the presentation. Today we announced net income of $10.9 million or $0.78 per share for the first quarter of 2016, a decrease of $2.7 million or $0.20 per share over the first quarter of 2015. This decrease in earnings for the first three months of 2016 was driven by lower natural gas and electric sales and margins, reflecting significantly warmer winter weather compared to the same period last year. As Mark will discuss later, we estimate that weather impacted our earnings per share negatively by $0.25 in the first quarter. Turning to Slide 6. The graph shows that our financial results have increased over the past three years, while maintaining a strong rate of return on our utility investments. Our financial results go hand-in-hand with our strong operating performance. We have met or exceeded all service quality metrics for safety, reliability and customer service, and our customers have seen an almost 50% reduction in outages since 2010. The continuing investment of both our gas and electric utility distribution systems and the successful execution of our regulatory strategy, and our attention to customer service is providing a platform for sustained growth. Moving on to Slide 7. Our utility rate base continues to grow, as we had new customers and improved both the gas and electric distribution systems. Over the past four years, our combined gas and electric rate base has grown at an annual rate of 7%, driven by customer additions and our infrastructure replacement and improvement programs. On the gas side of our business, our rate base has doubled and our gas segment profit has nearly quadrupled since acquiring our New Hampshire and Maine gas business. Looking forward, we believe we have ample investment opportunities that would allow us to continue to grow around these levels for the foreseeable future. Slide 8, highlights the growth we have achieved on our natural gas business. Our gas customer growth has contributed significantly to our operating results, with customer additions in the range of 2% to 3% annually over the last three years. In addition to customer growth of weather normalized unit sales have grown in the range of 4% to 6% annually over the past few years. And weather normalized unit sales for commercial and industrial customers were up about 7.4% year-over-year. And while it’s still early in the year we are up, we are ahead of our schedule over the last year in terms of customer additions. Turning to Slide 9. We continued to look for opportunities to expand our gas distribution system. For example, a recently approved rate surcharge mechanism in Maine allows us to economically extend our gas mains to new targeted service areas. This rate surcharge mechanism is being piloted in Saco, Maine. It allows customers in targeted area of Saco, the ability to pay a rate surcharge instead of a large upfront payment or capital contribution to connect to our system. This pilot has a potential to add a thousand new customers to our system with roughly $1 million in annual distribution revenue. We believe that the successful implementation of programs like this will continue to allow us to reach new service areas beyond the current reach of our distribution system in a cost effective and efficient manner. In fact, we have had surrounding towns ask us to be able to participate in this program in the years ahead. Slide 10 provides an update of our current electric system investment initiatives. Construction is continuing on schedule for our two new substation projects in New Hampshire, with the first coming online in the second quarter of 2016. These electric distribution substations will provide the capacity needed for continued load growth on our New Hampshire systems, while addressing constraints of existing substations and improving reliability. Another electric initiative we are pursuing is grid modernization in both our Massachusetts and New Hampshire electric subsidiaries. At a high-level, this program is an effort to improve the reliability, resiliency and operational efficiency of the electric grid, while empowering customers to use the electricity more efficiently and facilitating the integration of distributed energy resources. So before I turn it over to Mark to go into more detail, I want to put the first quarter results in proper context. If you look at the factors that had contributed to the results we reported over the last five years, controlling O&M spending, our capital investment program, our regulatory agenda and our gas growth program, they all remain intact going forward. And we’re confident that those factors will help us achieve similar growth in the years ahead. So, Mark? Mark Collin Thanks, Bob. I will begin by discussing the weather impact on our gas and electric sales margin for the first quarter shown on Slide 11. This winter, including the key heating months of January and February of 2016, was one of the warmest on record throughout New England. In contrast, last winter was one of the coldest on record in New England. The combination of these two winters, extreme cold last year and extreme warm this year create a accumulative estimated impact to earnings per share of $0.25 year-over-year due to the lower gas and electric margins. Now turning to Slide 12. Natural gas margin was $35.9 million in the quarter, a decrease of $2.9 million or 7.5% compared to the first quarter of 2015. Gas sales margin was negatively impacted by lower therm unit sales due to the warmer weather, partially offset by the positive impacts of higher natural gas distribution rates and the growth in the number of customers. There were 23% less heating degree days in the first quarter of 2016 compared to 2015, which we estimate negatively impacted earnings per share by about $0.22, due to the lower gas margins. Excluding the effect of the weather on sales, weather normalized gas therm sales were up 2% in the first quarter of 2016 compared to the same period in ’15. This weather normalized growth was led by a quarter-over-quarter increase in estimated gas terms sales of 7.4% to large commercial and industrial customers. Slide 13 highlights our electric business sales and margin. Electric sales margin was $20.1 million in the first quarter of 2016, a decrease of $1.1 million or 5.2% compared to the same period in 2015. As on the gas side, electric sales margin decreases reflect the impact of weather, albeit electric sales are clearly less sensitive to weather than gas. We estimated that the weather impacted electric sales by about $0.03 in the first quarter of 2016 compared to the first quarter of 2015. Excluding the effect of weather on sales, weather normalized electric sales were led by 2.9% increase in sales to large commercial and industrial customers. Now, turning to Slide 14. We have outlined the major expense variances for the quarter. Operation maintenance expenses increased $0.5 million or 3% in the quarter compared to the same period of ’15. Depreciation and amortization increased $0.4 million or 3.5%, primarily reflecting higher depreciation on normal utility plant additions. Taxes, other than income taxes, increased $0.1 million or 2%, primarily reflecting higher local property tax expense. Net interest decreased $0.3 million, reflecting lower levels of long-term debt. Finally, income taxes were down $1.9 million, reflecting lower pre-tax earnings for the period. On Slide 15, we have provided an update of our financial results at the utility operating company level. The chart shows the trailing 12 months actual earned return on equity in each of our regulatory jurisdictions. Our total return on equity is lower in the last 12 month period ending March 31, 2016, reflecting the unseasonably warm weather in the first quarter that we have been talking about. Also, as we’ve discussed in the past and as shown on the table to right, we have long-term capital cost trackers in place to recover a significant portion of current and future capital spending. We have some other rate case activity underway, which I will summarize shortly. We expect these rate cases will help us to improve our realized rate of return as the year progresses. Slide 16 highlights our electric and gas rate case fillings in Massachusetts. Combined, both fillings reflect a revenue deficiency of approximately $6.8 million. We expect a decision in these two rate proceedings by May 1, 2016. In addition, we recently filed a notice of intent to file a base rate case for our New Hampshire electric subsidiary. We expect to file this rate case later next week, with a revenue deficiency of approximately $6 million. Now, this concludes our summary of our financial performance for the period. I’ll turn the call over to the operator who will coordinate questions. Thank you. Question-and-Answer Session Operator [Operator Instructions] Our first question comes from the line of Peter Wernau with Wernau Asset Management. Peter Wernau I had a quick question. We look at the business as sort of the underlying growth of volume versus the weather impacts. It’s nice that we had a nice and warm season, but if this doesn’t really impact our investment thesis, one thing I was hoping that you might provide some color on. I noticed you showed the compounded annual growth rate of the gas business and we’ve been modeling that. Is there a comparable metric for electric? Mark Collin In terms of the growth rate, as you said, if you get away from the volumetric kilowatt-hour sales the one thing that the weather doesn’t impact is our customer growth or our investment growth. And relative to our customer growth on the electric side of the business, we have been then continued to add customers on that side. It’s a little slower than gas. It doesn’t have the same high growth rate we’re seeing on gas primarily, because electric is just about served everywhere, so it grows along with households. We’re growing about 0.5% a year in terms of customers. On the investment side, we’ve also continued to have investment in rate base on electric. And that’s intended to grow between 3% and 4% per year in terms of our rate base. So in contrast, the gas business is growing more in the 8% to 10% range whereas the electric is down in the 3% to 4% range on rate base. But they’re both growing and they’re both continuing to contribute. And as I indicated earlier, our planned rate case for our largest electric division here in New Hampshire, we’ll be filling that next week. And we hope that that will get us on a path, so that we can earn our authorized rate of return on that division and make sure these investments are returning for us. Robert Schoenberger I mean just from an anecdotal point of view, the amount of actual and planned construction both in Maine and the seacoast area of New Hemisphere is really robust and growing. So hopefully that will contribute to the growth rate in the gas as well as the electric business. Operator Our next question comes from the line of Insoo Kim with RBC Capital Markets. Insoo Kim First of all, in terms of weather for 4Q ’15, which was, I guess last quarter, how much of the EPS was impacted by weather compared to normal? Robert Schoenberger In the fourth quarter? Insoo Kim In the previous quarter and the fourth quarter of last year? Robert Schoenberger I’ve got to make sure I understand the periods of comparing. This last quarter compared to the same quarter, a year ago? Insoo Kim No, just versus normal, I’m just trying to see –? Robert Schoenberger Versus normal, we’re down about $0.09. $0.09 in EPS due to versus what normal weather would have been. Insoo Kim But that’s for the first quarter, just this past quarter, right? Robert Schoenberger Yes. Insoo Kim What about further quarter before that on the fourth quarter? Robert Schoenberger Fourth quarter, I’d have to check that. I don’t have the fourth quarter normalized results in front of me, right now. Insoo Kim Because, I mean, obviously the first and the fourth quarter being the largest quarters and with the [ph] 20s year-over-year decline in the first quarter, I’m just trying to have a base level of earnings to compare for the fourth quarter that’s going to be coming up in a few quarters, so I guess I’ll check with that offline. Robert Schoenberger Okay. Insoo Kim In terms of the gas penetration rates, do you still see given where the oil prices are, the gas sales to grow at a lower end of that 46% range that you guys were talking about on weather normalize basis? Robert Schoenberger As I was telling you before, again, it’s early in the year, so it’s still early, but we’re about 25%, 30% ahead in terms of gross meter adds over the last year. So the oil price obviously has had some impact, but anecdotal evidence, for example, on in Saco, Maine, there is an industrial park there with 36 businesses, every one of them has indicated their interest into converting to natural gas. So to be conservative, I’d say on the low side, but we have hopes that it might be better than that. Insoo Kim And from a commission standpoint. Have there been conversations recently or in the past about whether decoupling mechanism that, and whether they’re interested in or you may be interested in implementing something like that in the future, to mitigate some of this follow-through the Maine earnings? Robert Schoenberger As you know, in our Massachusetts jurisdictions, our subsidiary in Massachusetts, we do have both decoupling on the electric and the gas side of the business. And that is complemented by, on the gas side we have a cost tracker for cast iron replacement. And we’ve requested a capital tracker for electric as well. In New Hampshire, there is a lot of activity now, particularly around energy efficiency program planning and such and the decoupling concept has come up as a potential rate making concept to help encourage or support increased energy efficiencies spanning and basically make the utility indifferent to lost sales from that. One partial decoupling mechanism that is getting a lot of discussion now as a lost base revenue calculation that essentially decouples the energy sales losses due to energy efficiency from the utilities revenue, that’s got a lot of attention. And then, in Maine, where we have the gas business up there, the biggest thing that we moved towards is more of a rate design. It allows us to recover a larger percentage of our delivery cost based on fixed charges or charges that are not subject to weather or are not as volatile to weather. In fact, even this quarter, it was dampened by fact that we’ve been able to move our rates towards higher fixed charges and so that the approach there has generally been to move towards higher fixed charges. We haven’t had much discussion around decoupling, but it wouldn’t surprise me if that comes back up. End of Q&A Operator Thank you. And that concludes today’s question-and-answer session. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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The Purpose-Driven Portfolio: Evaluating The SRI Opportunity

Evolving demographics and performance factors are fueling the growth of sustainable investing. In 2010, retailing giant Target (NYSE: TGT ) set out to give away $1 billion for education by the end of 2015. The company zeroed in on education in part because research identified it as a top concern for its customers, many of whom are mothers of young children. In catering to the considerable synergies at play between its customer base and its philanthropy, Target became part of a new wave of corporate social responsibility that has companies large and small looking for ways to be seen as sustainable while also improving the bottom line. In addition to contributing to the greater good, these policies – whether directed externally through philanthropy or internally through environmental consciousness or generous employee benefits – are also table stakes in the game to win the loyalty of the all-important Millennial employee and consumer. For investors, this trend may spell opportunity. In recent years, socially responsive investing (SRI or sustainable investing) has enjoyed significant growth, both in assets under management and the number of products available to investors across the asset class spectrum. 1 A number of issues, from demographics to data supporting sustainability as a positive factor in investment performance, have contributed to this rise and are emblematic of a growing consciousness about the impact investors can have in the promotion of a better world. The Evolution of SRI and Emergence of ESG Factors SRI in its myriad forms has long occupied a position at the intersection of mission and investing. While its earliest incarnations in the U.S. date back to religious organizations such as the Quakers and Methodists, modern-day SRI has its roots in the social movements of the 1960s, and gained steam in subsequent decades, when it was employed for mainstream purposes as well as in service of political activism, for example to help drive change in apartheid-era South Africa and war-torn Sudan. During the last decade, the SRI mindset has evolved from a focus on the mechanics of industry avoidance (e.g., avoiding alcohol or tobacco companies) to a more formative, proactive approach that seeks to construct portfolios from the building blocks of companies with sustainable business practices. In 2007, the Rockefeller Foundation helped socialize this approach to SRI when it coined the term “impact investing” to refer to an investment program designed to produce measurable social or environmental outcomes alongside a financial return. Alongside this shift, a set of evaluation criteria, known as Environmental, Social and Governmental (ESG) factors, has gained prominence as a means of assessing a company’s sustainability alongside other key contributors to the bottom line. Environmental factors seek to assess a company’s impact on the environment, looking at a range of concerns, from its carbon footprint in light of climate change to pollution to the use of toxic chemicals, waste disposal and preservation of natural resources. An evaluation of a company’s environmental impact will include an analysis of its upstream supply chain as well as its products and services. Encompassing issues from a company’s workplace conditions to its supply chain integrity, social factors have gained heightened visibility in recent years, and may include an evaluation of workers’ rights, workplace safety and fair labor practices. In competitive industries, in particular, investors may be concerned about how a company can attract and incent a diverse workforce. This is particularly relevant for intellectual – capital-intensive industries like financial services, research and development and technology where employees drive revenue and attractive workplace policies can give companies a competitive advantage. In a publicly traded company, the role of corporate governance is to provide oversight to help ensure that management is focused and working on behalf of shareholders. Within the context of SRI, governance factors look at issues, including how boards provide oversight for sustainability initiatives and evaluate their impact on the bottom line, how companies incent and compensate management based on those factors, and how they disclose ESG performance metrics to investors and the public. To borrow an old cliché that “what gets measured, gets managed,” governance factors offer a means of validating company performance on sustainability issues. As part of their process, fundamental portfolio managers that consider ESG factors have a unique opportunity to engage with, and potentially influence, management teams and offer insight as they evaluate sustainability issues and their impact on shareholders. Other shareholder engagement tactics include shareholder resolutions and proxy voting. The Principles for Responsible Investment Initiative SRI’s move into the mainstream gained coordinated global support in 2006, when the United Nations, in partnership with a group of the world’s largest institutional investors, launched the Principles for Responsible Investment to promote a more sustainable global financial system. PRI signatories commit to invest their capital in accordance with six key principles. Today the PRI Initiative counts among its members nearly 1,400 firms, including Neuberger Berman, and accounts for approximately $60 trillion in assets under management. 2 Interpreting the Language of SRI An explosion of SRI-related terminology has clouded the picture for many investors. What’s most notable, however, is that the myriad SRI strategies available today makes it increasingly possible for investors to address their specific needs, goals – and values – within the context of their portfolios. Sustainability: The ability to continue a particular behavior in perpetuity Triple-bottom-line: An accounting framework developed in 1994 to measure financial, social and environmental factors within a company Impact investing: A phrase coined in 2007 by the Rockefeller Foundation to refer to a targeted, typically private investment program designed to produce a measurable social or environmental impact alongside a financial return Community investing: A subcategory of impact investing in which capital is invested in low income or otherwise underserved communities Shareholder engagement: A means of influencing corporate behavior through active ownership Economically targeted investing: An approach designed to favor investments that can yield a market rate of return alongside a collateral social benefit Millennials and Women Leading the Charge Meaningful growth in SRI during the last two decades underscores investor interest in the category. Between 1995 and year-end 2013, SRI assets under management in the U.S. grew from $639 billion to more than $6.57 trillion, accounting for one out of every six dollars under professional management. 3 The same 2014 report identified 925 distinct funds that incorporate ESG criteria into the investment decision-making process, up from 55 in 1995. While SRI has been traditionally associated with mission-based organizations, growing interest in ESG issues by the investing public at large, particularly among Millennials and women, may account for some of the gains in assets under management. Millennials may have fewer investable assets today than their more mature counterparts, but that is changing as they accumulate wealth through their own efforts and may become the beneficiaries of a portion of an estimated $30 trillion in wealth from Baby Boomers. 4 Both as consumers and investors, Millennials show a greater interest than the general public in working for, buying from and investing in companies that score well on sustainability factors. A 2015 Morgan Stanley survey of 800 individual investors with an oversample of 200 between the ages of 18 and 32, also found that Millennials are almost twice as likely to invest in companies or funds that target social or environmental outcomes, and are more than twice as likely to exit an investment due to objectionable corporate behavior. 5 Women, meanwhile, are also demonstrating a strong interest in SRI strategies. In the 2013 edition of its annual Insights on Wealth and Worth Survey of 711 adults nationwide with investable assets of at least $3 million, U.S. Trust found that 65% of women feel it is important to consider the positive or negative social, political and/or environmental impact of the companies in which they invest, compared with 42% of men. In the same survey, 56% of women reported that they would be willing to trade some performance for investing in companies with a greater positive social impact, compared with 44% of men.6 With women often joint voices or sole decision-makers in the management of household finances, their interest in ESG issues is likely to continue to be a factor in the growth of SRI strategies. Performance Points the Way Forward While sustainability factors do not measure financial performance, there is a growing body of evidence that these less-tangible issues can positively impact a company’s profitability (see below). It follows that a company with engaged employees or one that manages resources efficiently may offer competitive advantages, with the potential to achieve better long-term financial performance, than a similar company that measures poorly on such sustainability issues. The evidence supports this theory. Over a 15-year period, in aggregate, actively managed SRI equity funds in the U.S. outperformed their peer group and the S&P 500 on an absolute and risk-adjusted basis (see chart). 7 Research conducted by MSCI on two higher tracking error global strategies constructed using ESG data over an eight-year period also concluded that it was possible to improve returns on both an absolute and risk-adjusted basis by incorporating ESG factors into the investment process. 8 Further, a 2012 study by a trio of Harvard Business School professors using a matched sample of 180 U.S. companies found that high-sustainability companies-those that adopt rigorous sustainability policies such as giving the board of directors responsibility for sustainability, tying executive compensation to ESG metrics and auditing and disclosing this non-financial data-outperformed low-sustainability companies on measures of stock market and accounting performance. 9 A 2011 article in the Journal of Financial Economics found that companies with higher levels of employee satisfaction outperformed the market by 2% to 3% annually. 10 ESG factors cover myriad issues-e.g., pollution, waste disposal, human rights, pay equity, quality of materials – that can impact a company’s reputation and may affect the likelihood that it will face litigation. As a result, ESG factors are becoming a more integral component of the conversation about a company’s quality. In determining its annual list of top-performing CEOs, Harvard Business Review validated this viewpoint in 2015 when it began evaluating ESG criteria alongside company performance metrics. Its methodology now weights ESG factors at 25% of a CEO’s total performance score. 11 Sustainability: A Positive Factor in Long-Term Returns 1 Growth of $10K of All U.S. Actively Managed Socially Responsible Equity Funds versus S&P 500 Index and Peer Average Source: Morningstar, Neuberger Berman, Forum for Sustainable and Responsible Investment. Past performance is no guarantee of future results. Please see disclosures at the end of this publication. Data Time Period: 7/1/2001-12/31/2015. Measuring the Sustainability Contribution The growth of SRI appears on track to continue, particularly as Millennials gather and invest their assets, and institutional defined contribution and defined benefit plans further emphasize ESG factors following a favorable Department of Labor ruling in 2015 stating that ESG integration does not violate fiduciary duty. 12 As the category continues to evolve, the number of strategies available across asset classes-both actively and passively managed-is also likely to increase. While methods for companies to report on their sustainability efforts exist, however, they can be challenging to verify. We believe passion should not be passive, and that SRI is likely to be a category where active managers can distinguish themselves by employing fundamental research as they seek to identify companies that are differentiated on ESG and other factors that may be critical to performance. Q&A with Ingrid S. Dyott, Portfolio Manager, SRI Core Equity Team What explains the rapid growth in SRI assets? From a wider industry perspective, the 2014 SIF Trends survey indicates that managers who incorporate ESG factors into their investment process cited client demand for fulfilling values and mission as the greatest motivator, followed by the desire to generate social benefits, minimize risks and seek financial returns. From my perspective, there are three drivers. First, more mission-related investors have seen SRI strategies succeed and are investing in the space with history on their side. Second, with wider acceptance of ESG factors as material to performance, the category is attracting a broader investor base. Last but not least, long-term investors like foundations, endowments and pension funds are seeking ways to ensure the long-term financial health of their portfolios and increasingly are interested in sustainability issues. How do you explain the appeal of SRI among women and Millennials? Millennials witnessed the corporate scandals of the early 2000s and the 2008 financial crisis as young adults. As a result, they place a high value on ethics and responsibility. Meanwhile women, especially those in caregiving roles, are placing a higher priority on values and key sustainability criteria, recognizing that these characteristics can be drivers of good businesses over the long-term. What kinds of questions do you get from investors and how have they evolved in recent years? We have seen SRI move from being defined by “what not to own” to being defined by “know what you own.” While the NB SRI Core Equity team has always incorporated “leadership” criteria, we are enthused to see more investors interested in sustainability strategies as awareness has grown that ESG factors can be relevant to a company’s business. Questions we get typically reflect ongoing environmental, employee and governance practices. They are also influenced by societal events like violence in schools, environmental disasters and human rights issues, typically in the supply chain. 1 US SIF Foundation, “Report on Sustainable and Responsible Investing Trends in the United States,”2014, link . 2 Source: Principles for Responsible Investment Initiative, as of April 2015. 3 US SIF Foundation, “Report on Sustainable and Responsible Investing Trends in the United States,”2014, link . 4 Accenture, “The ‘Greater’ wealth transfer: Capitalizing on the intergenerational shift in wealth,” 2012, link . 5 Morgan Stanley Institute for Sustainable Investing, “Sustainable Signals: The Individual Investor Perspective,” February 2015. 6 US Trust, “Insights on Wealth and Worth,” 2013. 7 Source: Morningstar, Neuberger Berman, Forum for Sustainable and Responsible Investment. 8 MSCI Research, “Can ESG Add Alpha,” June 2015, link . 9 Robet Eccles, Ionannis Ioannou, George Sefaphim, Harvard Business School, “The Impact of Corporate Sustainability on Organizational Processes and Performance,” 2012, link . 10 Alex Edmans, The Journal of Financial Economics, “Does the stock market fully value intangibles? Employee satisfaction and equity prices,” 2011, vol. 101, issue 3, pages 621-640. 11 Harvard Business Review, “The Best-Performing CEOs in the World,” November 2015, link . 12 U.S. Department of Labor, “Economically Targeted Investments (ETIs) and Investment Strategies that Consider Environmental, Social and Governance (ESG) Factors,” October 22, 2015, link . This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Third-party economic or market estimates discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events may differ significantly from those presented. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, returns shown reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. The use of tools cannot guarantee performance. Diversification does not guarantee profit or protect against loss in declining markets. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results. SRI Equal Weighted Average: Consists of all U.S. actively managed socially responsible equity funds, as identified by Morningstar and the Forum for Sustainable and Responsible Investment, with a track record dating back to 2001. Morningstar Large Blend Average: Morningstar Average is the average of all the funds in the Morningstar category. The Morningstar category identifies funds based on their actual investment style as measured by their underlying portfolio holdings (portfolio statistics and compositions over the last 3 years). This category was chosen for comparison purposes because the portfolio compositions of the funds in this category are similar to the composition of the fund over this period. S&P 500: Consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index (stock price times number of shares outstanding), with each stock’s weight in the Index proportionate to its market value. The “500” is one of the most widely used benchmarks of U.S. equity performance. As of September 16, 2005, S&P switched to a float-adjusted format, which weights only those shares that are available to investors, not all of a company’s outstanding shares. The value of the index now reflects the value available in the public markets. This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions. The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC. © 2009-2016 Neuberger Berman LLC. | All rights reserved