Active Investor Social Update Fourth Quarter, 2016

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Reflecting on Changing Times

As a new year begins, we want to take a moment to assess 2017 and the many changes that could unfold globally. A new administration will soon take the helm in the US and with it come many unknowns—more than the usual during a time of transition. We want to pause and acknowledge that the tumult of the last few months is likely to continue but there is heartening broad-based collaborative work that is also taking shape.

Encouragingly, a broad coalition of investors and community leaders is evolving, joining us as we bring our skill, tenacity, experience and commitment to ensuring a sustainable and equitable world. We also have unexpected allies in visionary corporate leaders who have remained steadfast Lauren Compere (center) in Japan in November, speaking at the Asian Corporate Governance Association in their commitment to addressing the risks of climate and inequality. In this New Year, our commitment to planet and Indigenous communities, this is by no means a settled and people remains firm, as does our resolve to be careful issue. Investors must remain vigilant and focus on all areas of stewards of your capital. We are gearing up to ask portfolio engagement, including the banks financing the pipeline. To companies for transparency and accountability on priority this end, Boston Common has met with all four of the major areas, urging them to manage for the long term. Read more lenders to the Dakota Access Pipeline. TD Bank and Citibank from Boston Common’s President & Founder, Geeta Aiyer, in have issued statements in response, expressing concern for a statement on our website. the manner in which Energy Transfer Partners has handled human rights of indigenous peoples the project. Mizuho also issued a statement following our recommendation. Lauren traveled to Japan to meet with In welcome news amidst the post-election turmoil, the U.S. Mitsubishi UFJ Financial Group; they have yet to comment Department of the Army stated that it would not approve publicly, but we urged them to issue a statement. an easement for the proposed Dakota Access Pipeline (DAPL) to cross under Lake Oahe in North Dakota. The Going forward, we believe investors must continue to work Department requested that the Army Corps of Engineers with companies and key stakeholders to address the risks carry out a full Environmental Impact Statement (EIS) to of DAPL and seek a constructive resolution. To learn more consider alternate routes for the pipeline’s water crossing. about Boston Common’s engagement work on DAPL, please While this is a big victory for the Standing Rock Sioux Tribe see our recent statements. sustained dialogue in asia

Inside the Issue Over the past ten years, we have demonstrated our commitment to a sustained and informed engagement Spotlight: Engagement in Japan...... 2 model in Asia. In November, Lauren Compere traveled to Disclosing the Facts 2016...... 4 Japan to meet with a number of our Japanese portfolio Taking Stock: Reflecting on the Quarter...... 4 companies and to speak at the Asian Corporate Governance Association (ACGA) conference on the “Governance of Sustainability.”

BostonCommonAsset.com Active Investor Social Update Fourth Quarter, 2016

Active Ownership Updates sustained dialogue In each company meeting, we indicated areas where we thought their individual sustainability practices were We have traveled many times to Asia, including Bangladesh, advanced versus their peers. Since our last meetings two China, Hong Kong, India, Japan, Singapore, and South Korea, years ago, our discussions have evolved to be more frank to speak at and participate in regional investor forums, engage and detailed. Each of the companies we met with were our portfolio companies, and collaborate with local partners. receptive to our questions, which we shared in advance. All At the Asian Corporate Governance Association (ACGA) company meetings included agenda items focused on Board conference on the “Governance of Sustainability” and the Structure, CSR Management (Governance of Sustainability) CDP Japan Club, Lauren shared global investor expectations and Women’s Empowerment. In our discussions, we on how to be more strategic on managing sustainability focused primarily on material sustainability issues where issues. She met with six of our portfolio holdings (Astellas we had identified gaps in performance or where a Pharma, Kao, Mitsubishi UFJ [MUFG], Orix, Panasonic and company could take a leadership position. For example, Shiseido) on material ESG/CSR issues linked to each company’s we focused on chemical safety and responsible sourcing core business model. The meetings covered issues such as (Kao, Panasonic, and Shiseido), climate risk (MUFG, Orix), board governance on sustainability issues and diversity, CSR and access to medicine (Astellas). We analyzed financial management, eco-efficiency, responsible sourcing practices, companies MUFG and Orix in our 2015 “Are Banks Prepared supply chain oversight, and women’s advancement in the for Climate Change” impact report, and we discussed how workplace. This was our third trip to Japan in the last six years; they are embedding the management of environmental and we viewed it as an opportunity to: social risks, including climate change risk, within financing activities. We addressed MUFG’s due diligence procedures Engage some of our core Japanese companies linked to human rights and stakeholder engagement for controversial projects such as the Dakota Access Pipeline Share our perspective on which issues are most material (DAPL). We recommended that the company adopt sector to global investors, and specific policies for high-impact industries and issue a public Provide guidance on how companies can improve their statement, as many of their peers have regarding DAPL. sustainability practices, especially those that pose potential reputational risk or improve the bottom line Spotlight: Japan’s Sustainability Leadership Profile

Received the Nadeshiko Brand Award for its empowerment of women in the workplace and has a public Sustainable Develop- goal to increase women in management by 10% by 2020. Has comprehensive disclosure on implement- ment Goals (SDGs); ing the Sustainable Development Goals (SDGs) with a focus on tackling Neglected Tropical Diseases, Women including Chagas, and preventing other infectious diseases, through solutions such as a rice-based oral Empowerment vaccine against cholera and E-coli. Adopted a Human Rights policy in 2015 based on the UN Guiding Principles for Business and Human Human Rights Rights and began to implement supplier human rights due diligence in 2016. Kao assessed water risk Due Diligence; across its entire supply chain using the WRI Aqueduct and WBCSD Tool in 2015 and achieved an A- on Water Stewardship the company’s 2016 CDP Water Survey.

MUFG is one of only 7 companies in Japan’s Topix 500 with all 3 board committees chaired by outsiders Board Structure and only one of 11 companies with more than 5 outside directors.

In addition to ORIX’s leadership in renewables financing with 920 MW of solar power generation capac- Green Financing; ity in Japan, they are expanding to other eco-efficiency energy sources such as wind power in India, Eco-Efficiency increasing battery storage capacity and investing in green buildings in the U.S.

Conflict Minerals Have used the Conflict Minerals Reporting Template (CMRT) with their suppliers (86% response rate) Disclosure; and in FY 2016 surveyed 1,300 suppliers and a total of 256 smelters. 65% of the 4 conflict minerals have Responsible Sourcing been certified as conflict-free (65% of tin, 100% of tantalum, 66% of tungsten and 65% of gold).

Eco-Efficiency; Shiseido has 3 women on its board of directors and over 30% of its management is women, one of the Women highest we have seen. Shiseido has an aggressive target to move more than 70% of its containers to Empowerment plant-based polyethylene by 2020 and is using a manually recycled PET. Active Investor Social Update Fourth Quarter, 2016

Active Ownership Updates

Overall, we saw the most advanced practices by our international collaboration Japanese holdings in Eco-Efficiency efforts, moving our ongoing dialogue from operations to embedding In October, Boston Common launched the public phase efficiency throughout the lifecycle: from product design to of its Eco-Efficiency engagement with Air Liquide, BMW, manufacturing to disposal. More Japanese companies are National Grid, Spectra Energyand Statoil. We sent letters now on the CDP “A” list, which indicates that companies to the companies co-signed by over 60 institutional across the board in the region are improving how they investors globally with over $1 trillion total in assets under manage their carbon footprints. We are seeing progress management. In the fall, we were pleased that Ceres on disclosure under the CDP Water Survey and many of incorporated part of Boston Common’s Eco-Efficiency our portfolio companies are responding to the CDP Supply framework into its new energy productivity initiative, aimed Chain and Forest Surveys. We believe that CDP performance at U.S. companies. Boston Common continues to engage and reports can generally be considered as a litmus test for other portfolio companies on the Eco-Efficiency theme such overall sustainability. as Veolia and Panasonic. Some initial findings: Air Liquide In our dialogues in Asia, we emphasize the “G” in ESG, believes it is near the technical limits for improving the as we believe that without good governance, it can be energy efficiency of its electric-powered air separation units difficult for a company to competently manage other to make industrial gases. Instead, Air Liquide is working to sustainability issues. A recent report by Jeffries analyzing reduce energy used by its truck fleet to deliver products Japanese board structure, “Board Structure: Reality Versus to customers. Air Liquide is bullish on hydrogen fuel cell Best Practice,” indicates that less than ten percent of TOPIX vehicles and is helping to build “hydrogen highways” 500 Index company corporate boards have an acceptable infrastructure in Europe and California. German auto board structure. Board governance is therefore a top priority manufacturer BMW said it has a goal for reducing resource for us regarding Japan. Positively, three of the companies use (energy, water, waste and solvents) per vehicle by 45% we met, Astellas, MUFG, and ORIX, were among the top by 2020, and it has achieved an average reduction of 48% ten percent. For more challenging issues, such as gender already. BMW said it still has a ways to go to meet its 45% diversity on the board and in senior management roles, per vehicle energy reduction target. BMW detailed how it is we have approached engagement through a regulatory improving the Eco-Efficiency of its manufacturing, including focused framework. Specifically, we used a 2015 law with its most efficient factory, based in Mexico. Boston Common the literal translation “Propelling Females Activity Law,” is currently organizing dialogue calls with most of the which requires companies with more than 300 employees companies for January and February 2017. We plan to report to strive for having 30% female managers and 5 to 10% additional progress in April 2017. female directors by 2020. This is an ambitious goal, given Under our international collaborative engagement for current levels in Japanese companies: average of 9.2% the 2016 Access to Nutrition Index (ATNI), we met with female managers and 2.8% female directors. While there Mondelēz and PepsiCo to discuss the progress they have is no enforcement mechanism, this quota allows for frank made on improving their nutrition policies and practices. discussions on a sensitive issue and pressures companies to PepsiCo has moved from taking a regional approach to now “comply or explain.” establishing comprehensive global portfolio reformulation Overall, we saw a marked change in the open and direct goals to reduce sugar, salt, and fats under their new 2025 nature of the discussion and a willingness to showcase goals. We engaged Mondelēz on how it is implementing “corporate culture” around managing sustainability its global product reformulation targets—a leading practice issues. Each meeting included a discussion on how CSR/ among peers—and its focus on fortification initiatives on ESG issues are brought to and discussed at the board level. priority countries. Mondelēz has begun to make some of We have already received feedback from companies that our its fortified products more affordable in those markets. We suggestions and recommendations were helpful; in a few also engaged Ajinomoto under this initiative, and it was one cases, companies had already taken action to make changes. of the first companies to provide a response to the investor group. Global Japanese companies are making clear progress advancing ESG/CSR issues, moving from a regional approach to a global approach, and we now have a more robust shareholder engagement model in Japan. Read more on our website.

BostonCommonAsset.com Active Investor Social Update Fourth Quarter, 2016 Metrics & Scorecards

In December, Boston Common partnered with As You Sow and the Investor Environmental Health Network to publish the fourth annual “Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations” (DTF 2016), accompanied by its annual scorecard of 28 oil and gas companies’ practices related to hydraulic fracturing operations in the U.S. and Canada. The scorecard has been a crucial resource for global investors to press oil & gas companies, and it helps drive companies to voluntarily adopt best practices. While we saw improved risk disclosure by several companies, 70% percent continue to receive failing marks. The report gauges the quality of disclosure for investors on the use of toxic chemicals, water consumption and quality, waste management, air emissions, methane leakage, and community impact. Apache Corp. continues to rank in the leading companies with a score of 29 and was the top company on addressing toxic chemicals. As a result of Boston Common’s sustained engagement with the company, Apache reduced the volume of toxic chemicals it used in North America by 60% between 2014 and 2015.

Taking Stock: Reflecting on the Quarter

Dakota Access Pipeline and Banks: Boston Common met with all four of the major lenders to the Dakota Access Pipeline. TD Bank and Citibank have issued statements in response expressing concern for the manner in which Energy Transfer Partners has handled the project. Lauren traveled to Japan to meet with Mitsubishi UFJ Financial Group; they have yet to comment publicly, but we urged them to issue a statement. Mizuho responded that Mizuho Milestones Americas has issued a public statement about their steps to perform enhanced human rights due diligence on this project. Read our DAPL statement and join us in engaging banks and financiers. Eco-Efficiency: Statoilsold off its oil sands operations in Canada, following engagement by Norwegian investors, Boston Common and others.

2016 Access to Nutrition Index (ATNI): We are co-leading an international collaborative engagement using the Ac- cess to Nutrition Index (ATNI) 2016 Index findings to the engage thirteen food & beverage companies on their nutrition practices, including how the company has incorporated the Index recommendations to inform their nutrition strategies and at what level were the Index findings shared in the company. Boston Common is leading or co-leading dialogues with Ajinomoto, Mondelēz, PepsiCo, and Unilever.

Work in Progress Eco Efficiency: We sent letters to companies, including Air Liquide, BMW, National Grid, Spectra Energy and Statoil, co-signed by over 60 institutional investors globally with over $1 trillion total in AUM. Air Liquide has expanded its focus on improving energy efficiency from the production of industrial gases to building the infrastructure for “hydrogen highways” in California and Europe. BMW had a goal to improve its resource efficiency (energy, water, waste and solvents) per vehicle by 45% by 2020 and has already exceeded this with an average reduction of 48%. We are organizing dialogues with the companies during the first quarter.

Drug Pricing Transparency: This 2017 ICCR Shareholder Initiative includes investor engagement with 21 leading pharmaceutical companies, all of which have the potential to demonstrate leadership by agreeing to expand disclo- New Initiatives sure around their drug pricing strategies in the US. Boston Common is leading engagements with GlaxoSmithKline and Novartis and co-filed resolutions with Biogen, Bristol Meyers Squibb, Gilead, Johnson & Johnson, Merck, and Regeneron.

Boston Common Asset Management is a federally registered investment adviser. The firm provides socially responsible investment management services to individuals and institutions who seek sustainable, long-term capital appreciation with social screening and shareholder advocacy. The information in this document should not be considered a recommendation to buy or sell any security. There is no assurance that any securities we discuss will remain in an account’s portfolio at the time you receive this document. The securities discussed do not represent an account’s entire portfolio and may represent only a small portion of an account’s holdings. It should not be assumed that any securities transactions we discuss were or will prove to be profitable. Past performance does not guarantee future results. All investments involve risk, including the risk of losing principal.