University of California, Santa Barbara
PA-9: Sustainable Investment

Investments in sustainable forestry funds and clean energy investments via funds.

http://www.ucop.edu/investment-office/sustainable-investment/index.html see pdf at bottom of page The world is changing and investors must keep abreast of how growing awareness of environmental, social and governance (ESG) risks spreads rapidly via social and other media to influence markets. At the Office of the Chief Investment Officer of the Regents (OCIO) we believe ESG risks can present opportunities and that addressing these factors is in line with our fiduciary duty. Some of our stakeholders have voiced concerns regarding the impact ESG risks could have on the future growth of our endowment and retirement funds. We have listened carefully to these concerns through meetings, one-on-one encounters and written exchanges. Based on this stakeholder engagement, as well as extensive research on ESG risks and opportunities, we agree that certain material ESG factors will increasingly become a focus of risk assessment for long-term value creation in the years to come. We continue to actively study how our peers and fund managers are improving measurement of these variables for integration into investment decision-making and are working to bring ESG evaluation more holistically into our investment culture. There are key ESG risks that are driving new economic and financial trends and that can guide our investment decisions and fund manager selection and monitoring. This list is not intended to be static, but represents important core universal principles we keep in mind as we aim to ensure the best return on investments for our university and its many stakeholders. These principles include the following trends and considerations: Climate Change: Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system.[1] A transition to a lower carbon economy, including low carbon sources of energy, is necessary to ensure the health and well-being of future generations. Given the scale of existing infrastructure and the challenge of quickly shifting the transportation sector to low carbon fuel sources, this transition requires a multi-generational effort. Inequality: Addressing inequality is not only a responsibility but also an opportunity.[2] Solving inequality of opportunity can create new demographics that can contribute to economic progress and widen the market for goods and services, thereby creating a more profitable and sustainable business climate. Human Rights: Businesses whose profits are derived from direct harm to public safety, the unlawful deprivation of human dignity, or the exploitation of children or other vulnerable workers undermine universally approved United Nations principles and create a serious threat to the conditions needed for a well-functioning, market-based global system. Food and Water Security: Global climate change, population growth and rapid urbanization are intensifying the strain on global water and agricultural systems. Human well-being is inexorably linked to water and food security, and failure to adequately ensure these basic needs for future generations will undermine global economic welfare, human security and political stability. Diversity: Diversity enhances economic, social and environmental outcomes for business and society. Ageing Population: Rapid aging of populations will be a transformational force affecting society and the global economy, requiring new approaches to health systems, workforce organization, intergenerational relations and public finance. Circular Economy: The “take, make, dispose” pattern of growth is an unsustainable economic paradigm. We must transition to a more circular economy in which intelligent design allows us to decouple economic growth and development from consumption of finite resources. Ethics and Governance: Our market economy system relies on trust as a fundamental cornerstone. Good corporate governance and proportionate, transparent and responsible regulation are vital to well-functioning and sustainable financial markets. As long-term investors, we seek the sustained returns associated with strong governance, rather than the rapid gains that can vanish quickly if they are rooted in corruption, fraud or falsification. Recent financial crises highlight how destructive such fraud and corruption can be to the proper functioning of credit markets and the preservation of personal and corporate wealth. [1] Intergovernmental Panel on Climate Change (IPCC), the leading informational body for the assessment of climate change. The IPCC was established in 1988 by the United Nations Environment Programme and the World Meteorological Organization (WMO) to provide a clear scientific view on the current state of knowledge on global climate change. [2] World Economic Forum (Davos)

We are soliciting the ESG policies of all of our external investment managers and communicating to them about our ESG policy and new restrictions for public securities they cannot buy on our behalf.

The University’s proxies are managed and voted by a third party service provider using their SRI proxy voting guidelines: http://www.issgovernance.com/file/2014_Policies/2014ISSSRIUSAGuidelines.pdf & http://www.issgovernance.com/file/2014_Policies/2014SRIInternational.pdf

The UC Office of the Chief Investment Officer participated in a meeting hosted by the World Economic Forum on investors and climate risk, among other engagements with corporations. The Office of the Chief Investment Officer is also collaborating in the Breakthrough Energy Coalition.

In addition to Regent policies, the Office of the Chief Investment Officer of the Regents has opted to eliminate its holdings in firms whose primary business is coal mining, oil sands investment and development and private prison companies. The Office of the Chief Investment Officer of the Regents also has a negative screen on securities of firms who manufacture guns for the U.S. market and who have not endorsed the Sandy Hook principles for responsible business. This disinvestment came after a careful internal ESG risk evaluation process under the new Sustainable Investing framework. Regent Policy 6301: POLICY TO EXCLUDE SECURITIES OF COMPANIES MANUFACTURING TOBACCO PRODUCTS FROM INDEX FUNDS AND TO CONTINUE EXISTING EXCLUSION FROM ACTIVELY MANAGED FUNDS http://regents.universityofcalifornia.edu/policies/6301.html Regents Policy 6302: POLICY ON DIVESTMENT OF UNIVERSITY HOLDINGS IN COMPANIES WITH BUSINESS OPERATIONS IN SUDAN http://regents.universityofcalifornia.edu/policies/6302.html

UC is an active member of: • Principles for Responsible Investment • Ceres Investor Network on Climate Risk • CDP (formerly Carbon Disclosure Project) Sustainability web content is under construction to share information about the UC sustainable investment efforts. Participant: Breakthrough Energy Coalition Participant: US Aligned Intermediary

In 2015, UC Regents launched a framework on Sustainable Investing. The framework integrates risk evaluation on environmental sustainability, social responsibility, and prudent governance factors more systematically into its investment evaluation analysis. As part of this ESG analysis, the UC Regents decided to sell holdings in securities of companies engaged primarily in coal mining and firms focused on oil sands development and production. UC Regents Board of Trustees has not excluded these specific fossil fuel companies in a formal divestment policy. They have been screened based on financial analysis that the risk associated with these investments outweighs any potential financial benefits to our portfolio.