pmc large cap impact quantitative portfolio€¦ · · 2017-10-03the pmc large cap impact...

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A Closer Look At Our HoldingsThe PMC Large Cap Impact Quantitative Portfolio is designed to track the characteristics and returns of the Russell 10001 and focuses explicitly on companies with high sustainability ratings and/or environmental, social, and governance (ESG) priorities. Impact investors benefi t from diversifi ed, low-cost market exposure and opportunities for tax management in a single, separately managed account.

13Telecommunications

33Financials

13Utilities

15Healthcare

9Materials

2Energy

14Consumer Discretionary

22Industrials

22Information Technology

5Consumer Staples

# OF SECURITIES BY SECTOR:

Environmental

Governance

Social

ESG ISSUES ADDRESSED:

148 securities

10 sectors

1000 portfolio designed to provide approximate sector allocations of this index

Russell

PORTFOLIO OVERVIEW:

% RANK VS. PEER GROUP3:

37%of the portfolio ranks in top 25% for ESG vs. peer group

49%of the portfolio ranks in top 25% for carbon vs. peer group

70%of the portfolio ranks in top 50% for ESG vs. peer group

85%of the portfolio ranks in top 50% for carbon vs. peer group

1 The Russell 1000® Index measures the performance of the Large Cap segment of the U.S. equity universe.2 Source: US SIF.3 Source: PMC Quantitative Research using data provided by Sustainalytics.

TOP 25%

TOP 25%

TOP 50%

TOP 50%

includes confl ict risk, equal employment opportunity and diversity, and labor and human rights2

includes corporate board issues, transparency, anti-corruption, executive pay, political contributions2

includes climate change and clean technology2


AbbVie Inc. (ABBV)

Sector:

Healthcare

ESG Issues:

Social

Governance

What they do: AbbVie Inc. is a US-based pharmaceutical company. Its key ESG issues are product governance, business ethics, and human capital.

How they make an impact: • AbbVie’s independent ethics committee is responsible for managing clinical trials

and obtaining participants’ informed consent before starting trials. The company also commits to only conducting trials where it intends to market its products.

• All of AbbVie’s manufacturing facilities adhere to strict Good Manufacturing Practices (GMPs). The company’s global product protection team consistently and systematically analyzes its supply chain to prevent counterfeit or diverted products from reaching patients. As a result, the percentage of top suppliers adhering to the company’s sustainability requirements increased from 41% in 2015 to 70% in 2017.

• Its Environmental Health and Safety Culture program is designed to encourage employees to identify and mitigate safety risks. The company disclosed a goal of reducing recordable workplace incidents by 205 by the year 2020 over a 2013 baseline. In 2016, the incident rate of 0.27 was a decrease from 0.45 in 2013. Six manufacturing sites achieved OHSAS 18001 certification, a management framework for best practice in health and safety in the workplace.

• Strong diversity programs include mentoring and career support as well as work-life balance programs such as childcare and mothers at work programs. The company also offers student programs and internal development for physicians, pharmacists, and researchers. However, it is uncertain whether these projects extend beyond the company’s US employees. AbbVie commits to guarantee equal working opportunities for its employees. The company set up targeted recruitment initiatives for veterans in the US and is promoting affinity groups focusing on mentorship, internal networking and professional development.

• In 2017, the company reported that 53.4% of AbbVie’s workforce are women, and 38% of top management are women. Notably, 57% of new hires were female, demonstrating the company’s commitment to work place diversity.

PORTFOLIO HIGHLIGHTS


Accenture plc (ACN)

Sector:

Information Technology

ESG Issues:

Social

Environmental

What they do: Accenture plc provides management consulting, technology and outsourcing services organized around 13 sector groups including Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Key ESG risks are data privacy and security, human capital, and greenhouse gas (GHG) emissions.

How they make an impact: • Accenture has direct access to client’s sensitive data through its IT consulting

and outsourcing business, making data privacy and security a key area of concern for the company. Acknowledging these risks, the company developed a global data protection program applicable to all Accenture group entities spread across 53 countries. The company’s centralized data privacy compliance team is led by a Global Data Privacy Lead and is supported by local data privacy officers in each country where Accenture operates. Accenture commits to carrying out periodic data privacy audits to assess the company’s preparedness with meeting its regulatory and operational commitments.

• Consulting companies that service diverse industries need to attract and retain domain expertise and top talent, and Accenture manages this priority well. The company stated that it continues to invest in developing employee capabilities, spending USD 941 million in training and professional development in fiscal year (FY) 2017. The company increased transparency of employee demographics and set a goal of having 40% of its US workforce comprised of women by 2020. Accenture’s internal cross-cultural certification program intends to improve communication within its global teams.

• Accenture demonstrated a commitment to lessen its environmental impact and accelerate the shift to a lower carbon economy through action around reducing operational GHG emissions. In 2017, Accenture cut its per-person carbon emissions by more than 52%, achieving its goal of a 50% reduction in per-person emissions by 2020 ahead of schedule. The company achieved a 4% reduction in air travel carbon emissions per employee from fiscal 2016. 76% of the company’s key suppliers disclosed emissions reduction actions and 72% disclosed targets.


Adobe Systems, Inc. (ADBE)

Sector:


ESG Issues:

Social

Environmental

Governance

What they do: Adobe develops and sells software and services for content creation and the measurement of digital advertising and marketing. The company is organized into three business segments: digital media, which includes numerous applications housed in Creative Cloud, such as Photoshop and Lightroom; digital marketing, which includes Adobe Analytics, Media Optimizer and Campaign Manager; and print and publishing. Adobe’s key ESG issues include human capital and data privacy and security.

How they make an impact: • Adobe published pay data for its US operations in 2016, which revealed that

women earn 99 cents for every dollar earned by a male employee in the US. Adobe notably offered employee support beyond regulatory requirements, extending maternity leave for up to 26 weeks in the US. As a member of the Business Coalition for Equality, Adobe is also a strong proponent of transgender and LGBT rights. These efforts contribute to attracting talent in a highly competitive talent pool.

• Adobe’s data security program, led by the Chief Privacy and Security officers, indicates a commitment to security from employee training initiatives through to the product design and use phase. Adobe’s Secure Software Engineering Team (ASSET) implements product and service security standards, with the Security Coordination Center (SCC) addressing threats to Adobe assets and operations. The company’s Product Security Incident Response Team (PSIRT) handles detected product vulnerabilities raised by internal and external parties. Engineering and operations staff are continuously trained under ASSET’s Software Security Certification Program.

• The company’s sustainability policy includes commitments towards sustainable product design, conserving resources, and setting science-based emissions targets. Adobe continues to pursue its ongoing ESG target of running on 100% renewable energy by 2035. Adobe installed wind turbines at its San Jose headquarters to generate on-site power. The company signed the White House American Business Act on Climate Change as well as the Climate Group’s Renewable Energy 100. 76% percent of the company’s workspaces are LEED certified, almost 2.9 million square feet of space.

• Adobe implemented several digital inclusion initiatives such as Adobe Youth Coding initiative to provide educational opportunities to under-represented youth and Adobe Youth Voices to provide a creative platform on which to collaborate. Adobe also offers free educational resources through the Adobe Education Exchange.


Bank of America (BAC)

Sector:

Financials

ESG Issues:

Governance

Environmental

What they do: Bank of America (BofA) is one of the largest financial institutions in the world, with lending operations in the consumer, small-business, and corporate markets in addition to asset management and investment banking divisions. Compared to its peers, BofA is highly vulnerable to its key ESG issues: product governance, business ethics, and resilience.

How they make an impact: • Of the 15 directors, 11 have international experience, nine have CEO experience,

two are African-American and five are women. The board is also 93% independent.

• The company is committed to ensuring that low- and moderate-income and minority communities have access to the services and programs they need to build financial stability and create healthy neighborhoods. One way BofA supports economically disadvantaged communities and individuals is the USD 1.5 trillion, 10-year community development lending and investing goal established in 2009. Other related activities include projects focused on affordable housing, small businesses, and checking products. In 2015, as part of its USD 1.5 trillion goal, BofA provided more than USD 62 billion in financing to low and moderate-income families, seniors and veterans, as well as supportive housing efforts and projects that incorporate energy efficient and transit oriented elements. In 2016, it provided nearly $4 billion in loans through its community development banking, and as of 2016 it had invested over USD 1 billion through community lending partners across the US. Additionally, in 2015, the company provided financial services to more than 3 million small business owners in the US, amounting USD 10.7 billion in new credit. The company commits to continue engaging with nonprofit and government organizations to offer much-needed support to small businesses that do not meet traditional lending criteria, thereby providing opportunities to create jobs and grow local economies.

• In feedback with Sustainalytics, the company disclosed policies on financing forestry projects and coal extraction. Regarding the former, the company disclosed circumstances where it will not finance commercial projects or operations including the extraction or clearing of primary tropical moist forests, high-conservation value forests, or companies that collude with, or purchase timber from, illegal logging operations. The company’s coal extraction policy stipulates that it is committed to significantly reducing its exposure to coal extraction companies.

• BofA is a leader in the green bond market. In 2016, the company announced the issuance of its third and largest green bond for $1B in aggregate principal amount to be used to finance wind, solar and geothermal projects, furthering its commitment to advancing renewable energy generation. BoA’s Catalytic Finance Initiative (CFI) is designed to stimulate at least $10B of new investment into high-impact clean energy projects. In 2016, eight additional partners joined the CFI for a total commitment of $8 billion to date.


Cisco Systems, Inc. (CSCO)

Sector:


ESG Issues:

Environmental

What they do: Cisco is a US-based technology hardware company focused on products and services for network management. It is diversifying beyond its traditional switch and router business into advanced higher-margin, subscription-based solutions, such as software defined networking (SDN) and information security and data analytics, with a focus on capitalizing on the Internet of Things trend. Key ESG issues for the company are supply chain management and energy use.

How they make an impact: • Cisco implemented industry-leading standards on social supply chain

management. The company adopted the RBA (formerly EICC) Supplier Code of Conduct which draws upon International Labor Organization (ILO) standards. The company conducted its first Human Rights Impact Assessment of its supply chain in 2017 auditing 53 supplier facilities through a third-party auditor. Through that process, the company resolved to more intensively monitor the longer-term human rights impact of automation in its supply chain. Cisco’s supplier management addresses social and environment risks, including by monitoring various environmental aspects of its suppliers such as water use and discharge, solid waste, and hazardous materials management.

• Cisco is aware its increasing dependency on data centers and its strategy to focus on network and cloud offerings are notable contributors of GHG emissions. Cisco provides strong disclosure regarding its policies, programs, and initiatives to reduce energy use and GHG emissions. For example, the company has a goal to avoid 1 million metric tons of CO2 in its supply chain by 2020. More broadly, the company established a goal to reduce total GHG emissions worldwide by 60% by 2022. Cisco reported a 41% reduction in emissions over the last 10 years. Cisco has strong renewable energy programs, with more than half of its global electricity consumption coming from renewable sources, including on-site solar power. By the end of 2017, Cisco invested more than $50 million in more than 450 energy efficiency and renewable energy projects.


Intel Corporation (INTC)

Sector:


ESG Issues:

Environmental

What they do:Intel designs and manufactures integrated digital technology platforms consisting of microprocessors and chipsets. Intel is vertically integrated and holds the highest market share for semiconductor manufacturing. Two key ESG issues are supply chain management and energy use and greenhouse gas (GHG) emissions.

How they make an impact:• Overall, Intel’s management of ESG risks, opportunities, and the quality of its

disclosures have consistently been better than those of its peers. The company is also a pioneer in linking environmental performance to every employee’s compensation and proactively tackling the issue of conflict minerals.

• Intel is ahead of the curve in its sweeping efforts to eliminate conflict minerals from its supply chain. In 2008, it was the first semiconductor company to establish an internal conflict minerals team (two years before the US Dodd-Frank Act). The company built a comprehensive bottom-up system to trace the minerals used in its products, including the smelters and refiners that sit at the beginning of its supply chain. In 2016, the company reported that 92% of its mineral supply chain had obtained conflict-free status from an independent third-party audit program. Intel proactively participates in industry groups such as the Better Sourcing Program, through which it encourages responsible sourcing from the Democratic Republic of Congo.

• Intel recognizes the risks and opportunities associated with climate change, and supports market-based solutions to price carbon. The company participates in industry initiatives, such as the Digital Energy & Sustainability Solutions Campaign, to support policies that promote the use of Information Communication Technologies (ICT) enabled solutions to drive sustainable development. Intel purchases renewable energy and implements energy conservation solutions across its operations. Intel powers 100% of its US electricity usage through renewable energy sources and targets reducing direct GHG emissions by 10% on a per unit basis by 2020 against a 2010 baseline. Moreover, the company monitors scope 3 (supplier) emissions and set targets to reduce its supply chain emissions. Efforts in reducing energy use benefit Intel by improving operational efficiency and reducing operational costs. Energy-saving efforts have resulted in noteworthy cost savings for the company.


Microsoft Corporation (MSFT)

Sector:


ESG Issues:

Social

Environmental

What they do:Microsoft generates revenue by developing, licensing, and supporting software- and hardware-related products and services, as well as delivering online advertising to customers. Considering itsfocus on delivering mobile and cloud enabled solutions, data privacy and security and human capital are important ESG issues.

How they make an impact:• Microsoft is a leader in exhibiting preparedness around protecting users’ data

privacy and its transparency around law enforcement access is strong. The company’s privacy practices are centered around six key principles: control, transparency, security, legal protections, no content-based targeting, and user benefits. Microsoft discloses global government data and a separate report on US national security orders, which is considered an industry-leading practice. Microsoft also publicly challenged government demands for user data, indicative of a commitment to protect users’ privacy. The company integrates the Security Development Lifecycle (SDL), a process that embeds security factors across all phases of software development. The Microsoft Privacy Standard, like the SDL, is intended to integrate privacy as part of its product design process.

• Microsoft is focused on attracting and retaining top talent. The company implemented a robust global diversity and inclusion program with specific employee resource groups for Asians, Blacks, the disabled, LGBT, Hispanic/Latino, Parents, and Women, all of which have targeted mentoring programs and various diversity-specific initiatives. Microsoft is committed to the principle of equal pay for equal work; for every $1 earned by men, female employees in the US earn $1 at the same job title and level. Racial and ethnic minorities combined in the US earn $1.005 for every $1 earned by their Caucasian counterparts.


Oracle (ORCL)

Sector:


ESG Issues:

Social

Environmental

What they do:Oracle focuses on delivering consulting and support services, software and cloud computing, and hardware systems to enterprise customers. Two key ESG issues are data privacy and security and human capital.

How they make an impact:• Oracle’s approach to data privacy and security includes information security

standards for its suppliers. Oracle provides cloud-based information management solutions to more than 400,000 customers globally with a guarantee that their data will remain secure. The company has taken proactive measures to address data-related risks, such as conducting security audits and training its employees on data privacy. It has a Chief Privacy Officer as well as a Global Information Security Committee that oversees Oracle’s security policies and procedures. Furthermore, these policies are aligned with ISO/IEC 27001:2013 standards. Oracle has supplier-specific information security standards to help ensure that its suppliers are aligned with its data security approach. This is an industry-leading approach to data supply chain. Oracle commits to promptly notifying users if it determines that data has been misappropriated or incorrectly acquired by a third party.

• Oracle invested significantly in R&D and acquisitions, making a strong human capital strategy key to leveraging investments and new assets. Oracle has a strong human capital development program, demonstrating a proactive approach to attracting and retaining skilled talent. As part of its efforts to cultivate a diverse workforce, it has initiatives such as employee affinity groups, diversity internships, and the Oracle Women’s Leadership program. Oracle also has targeted recruitment for injured veterans or under-represented minorities such as African Americans and disabled workers, and mentoring programs. The company supports employee groups such as Hispanic Oracle Leadership Association (HOLA), and Lambda (LGBT). To encourage retention, it offers employee stock purchase plans and workplace flexibility options.


PepsiCo, Inc. (PEP)

Sector:

Consumer Staples

ESG Issues:

Environmental

What they do:PepsiCo manufactures and distributes nonalcoholic beverages, grain-based foods, and a variety of snacks. Its key brands include Pepsi, Gatorade, Mountain Dew, Tropicana, Quaker, Lay’s, Doritos, and Cheetos. Key ESG issues include the environmental and social impact of products, water use and human rights in the supply chain.

How they make an impact:• PepsiCo has been building out its nutrition portfolio through a combination

of acquisitions and new product innovations, while also bolstering traditional product lines by focusing on product reformulation and rolling out new low and no-calorie beverages. In 2016, Pepsi released a set of specific reduction targets to be achieved by 2025, targeting sugar, sodium, and saturated fat content in its products. It reported that the targets align with the latest dietary guidelines from authorities such as the World Health Organization. PepsiCo’s Performance with Purpose (PwP) 2025 agenda includes a goal to provide access to at least 3 billion servings of nutritious foods and beverages to underserved consumers and communities.

• PepsiCo relies heavily on water availability and access, and according to PepsiCo’s 2014 water risk assessment, 40% of its manufacturing sites are located in water-stressed or water-scarce areas. While exposure to water risks have the potential to materially impact PepsiCo’s business, the company manages this issue well. PepsiCo’s water management program is aimed at improving water efficiency in its operations by 25% and to have a positive balance in water distressed areas by 2025 from a 2016 baseline. The company also strives to protect and conserve global water supplies, especially in water-stressed areas, by maximizing water reuse and replenishing 100% of the water consumed in manufacturing to the same watershed where the extraction occurred. PepsiCo also takes active steps to hedge its water risks by extending water stewardship efforts to its agricultural supply chain and the communities in which it operates.

• PepsiCo’s key inputs include high-risk commodities such as palm oil and sugar, which the International Labor Organization identified as highly exposed to forced labor, modern slavery, and human trafficking. PepsiCo established a Supplier Code of Conduct, as well as many ingredient-specific requirements for high-risk inputs. The code is part of PepsiCo’s contracting process and is complemented by its Global Sustainable Agricultural Policy & Guiding Principles. PepsiCo conducts supplier pre-screening, third-party assessments, and corrective action planning. In 2017, the company announced plans to extend its Supplier Code of Conduct to its franchises and joint-venture partners by 2025.


Visa (V)

Sector:

Financials

ESG Issues:

Social

Environmental

What they do:Visa manages payment brands and an “open loop” global payment network, which allows it to provide authorization, clearing, and settlement of electronic payment transactions. The key ESG issues for the company are human capital and data privacy and security.

How they make an impact:• As the world’s largest retail payment network processing 141 billion transactions

with a total volume of USD 5.8 trillion annually, Visa is highly exposed to cyber security threats. Visa manages this issue well by providing its employees with relevant privacy and security training and integrating technology such as fraud data analytics. Visa is a founding member of the Payment Card Industry (PCI) Security Standards Council, which created the PCI Data Security Standard (DSS), a global payment security standard. All Visa acquirers and issuers must comply with the PCI DSS, along with any entity storing, processing, or transmitting Visa account numbers. The company has a data security team that coordinates Visa’s response to any security breaches. The team also works with merchants to identify any point of sale security deficiencies. Additionally, the implementation of EMV chip cards in the US has resulted in a 52% decrease in counterfeit fraud in September 2016, compared to a year earlier at chip-enabled merchants. These initiatives demonstrate that Visa understands the importance of securing data throughout its value chain.

• Visa’s employee programs indicate measures to provide an attractive work environment for employees. The company provides career development programs and performance-based rewards to motivate and retain senior and experienced personnel. In 2016, the company launched Visa University campuses at its headquarters in Foster City and Singapore supplemented by an online platform. The company released a 360-degree development tool for all employees to improve leadership skills through regular feedback. Its employee diversity and inclusion program, headed by a Chief Diversity Officer and the CEO, includes initiatives such as Visa Women’s Network. The company also released gender and ethnicity data for its US workforce for the first time in 2016. In addition to signing the White House Equal Pay Pledge, Visa is a founding member of Employers for Pay Equity, a business-to-business organization launched in August 2016 to leverage the group’s collective expertise to eliminate leadership and pay gaps for women and ethnic minorities in the US. These initiatives indicate a heightened focus on management efforts related to employee development and engagement.

• In November 2016, Visa held CODE UR WAY, a one-of-a-kind recruiting event to attract the top female engineering students in India. The company also offers Talking Cranes, customized training that equips women in leadership to take charge of their professional development.


DisclosureThe information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this brochure is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment vehicle. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. Past performance is not indicative of future results.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) funds are subject to interest rate risk which is the risk that debt securities in a fund’s portfolio will decline in value because of increases in market interest rates.

Neither Envestnet, Envestnet | PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

Diversification does not guarantee a profit or guarantee protection against losses. PMC-FS-IQPH-0618 / SR #950061

pmc large cap impact quantitative portfolio€¦ · · 2017-10-03the pmc large cap impact...

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