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 Global

Morgan Stanley & Co. International plc+ March 15, 2016 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 firm 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 Sustainable & Responsible Investment Research March 15, 2016

Morgan Stanley’s Sustainable + Responsible Investment Research Team

The Morgan Stanley Sustainable + Responsible research team believes that by better understanding the Environmental, Social, and Governance (ESG) risk s 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.

Jessica Alsford, CFA Eva Zlotnicka Carmen Nuzzo Executive Director Vice President Executive Director Head of Global SRI Research +1 212 761 4075 +44 20 677 0209 +44 207 425 8985 [email protected] [email protected] [email protected] Sector coverage: Information Sustainable Economics Sector coverage: Retail, Mining, Technology, Business & Employment Diversified Financials, Transport, Services, Oil & Gas, Chemicals, Leisure, Banks, Luxury Goods, Consumer Tobacco. Staples, Media.

Victoria Chapelow Faty Dembele Vice President A sso ci a te +44 207 425 6651 +44 207 425 3849 [email protected] [email protected]

Sector coverage: Utilities, Healthcare, Sector coverage: Consumer, Telcos, Insurance. Capital Goods, Construction, Autos, Aerospace & Defence, Real Estate.

2 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

Table of Contents

1. Recent S+R Team Reports……………… pages 4-22

2. Sustainability Themes…………………… pages 23-25

3. ESG Integration…………………………... pages 26-35

a) Framework

b) Examples of Integration

4. Appendix…………………………………... pages 36-38

3 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

Recent S+R Team Reports

4 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

In Case You Missed It… S+R Reports Published Recently 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 5 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 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 2025 Cement production 3836 4394 4506 Thermal energy intensity (GJ/T clinker) 3.7 3.3 3.1 Electricity intensity (Kwh/t cement) 96.3 88.5 88.2 Share of alternative fuels and solid biofuels 3% 8% 10% Clinker to cement ratio 0.69 0.68 0.68 CO2 intensity (T CO2/ t cement) 0.60 0.56 0.54 Source: Company data, Morgan Stanley Research Source: Based on IEA data from Technology clean progress 2015 © OECD/IEA, IEA Publishing http://www.iea.org/t&c/term sandconditions/ Our benchmarking analysis highlights best-in-class We see 4 key levers for cements plants to both producers and those with most scope to improve their reduce their environmental impacts and cost base: cost base: . Kiln optimization . LafargeHolcim, Cemex Latam and Anhui Conch stand out . Energy efficiency measures in their respective peer groups as the most efficient, enjoying structural cost leadership. . Clinker substitution . In contrast, Buzzi and Cementos Argos have room for . Emission controls improvement, ranking at the bottom of the range on Better energy efficiency will be central to several key indicators. competitiveness and sustainability . The HeidelbergCement / Italcementi merger should allow Italcementi to benefit from Heidelberg's environmental . Energy is one the largest cost component for best practices. cement producers in EM and accounts for around 30% of operating costs vs 20% in DM.

6 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 Global Tax Reform: A new innovation box – how will the US proceed? January 27, 2016 S&P 1500: Research & Development Expenditure is concentrated in Globally, OECD and non-OECD countries have been on the IT and Healthcare sector board with the recommendations provided by the BEPS project to reform the global tax system and action has started: • , , Denmark, , Ireland, , 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.

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. We believe that, if a patent box is introduced in the US, Tech and Pharma companies would see the greatest , as they hold significant property and patents. Global Tax Reform Reports: impact Global Tax Reform: EU takes further steps to combat tax avoidance in Belgium (11 Jan 2016) However, the patent box might not encourage growth in Global Tax Reform: An Update on BEPS- Final Package (6 Oct 2015) employment contrary to expectation. 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) 7 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 COP21 Recap: The proof is in the pudding December 14, 2015 Top 20 emitting countries: We highlight five noteworthy areas of Climate change policy tools & submitted Intended National Determined Contributions (INDCs) 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. Data as of December 14, 2015 Source: World Resources Institute (WRI) CAIT available online at: http://cait.wri.org/indc/ and Morgan Stanley Research 8 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 Sustainable Economics: Mind the inequality gap November 24, 2015

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

Source: OECD, Morgan Stanley Research 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.

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 9 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 Investor roadmap on food safety November 19, 2015

The incidence of foodborne illnesses remains high across the globe.

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 Source: US FDA, Center for safety and nutrition. Class I recalls are the most severe recalls year, and in some cases recall costs exceeded $100 million. There are some investment opportunities in the food Companies need to develop a preventative and holistic safety space approach to mitigate such risks: • We identify 8 stocks across the US and Europe exposed 1. Fostering a food safety culture to this theme: Agilent, Biomerieux, Bureau Veritas, Intertek, PerkinElmer, Qiagen, SGS and ThermoFisher. 2. Enhancing supply-chain visibility • Although food safety solutions contribute a relatively small 3. Implementing supply-chain ‘stress tests’ share of revenue today, they are increasingly becoming a 4. Investing in technologies to detect and prevent hazards strategic focus for these companies.

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

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

Source: Greendex 2014, Consumer Choice and the Environment- A Worldwide Tracking Surv ey, National Geographic, Globescan 11 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 Investor Roadmap on Cyber Security October 28, 2015 Total number of cyber security incidents (mn) 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.

Source: PwC, Global State of Information Security Survey 2015 & 2016 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: The Cost of Cyber Attacks 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.

Source: Ponemon Institute, HP, 2015 Cost of Cyber Crime Study: Global, October 2015 12 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 Investor Roadmap – How are banks responding post ~$260bn litigation? August 19, 2015

Debate 1: How far through the litigation process are the Litigation costs – Top 5 US banks vs major 20 in Europe – banks? European banks may still have c30% of the way to go • 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 Source: Actuals from 2009 to 2Q2015, forecast is MS base case 3Q15 to 2017; US Banks include now be found sitting on group boards. the Top 5 banks with largest litigation costs: BAC , JPM , Citi, WFC and GS Source: Company data, Morgan Stanley Research • Total pay has decreased (-32% between 2006 and 2014). Investment conclusions: • There is an increased focus on long-term incentives, with LTIPs representing a greater percentage of total pay. • US major litigation is largely behind us, except for the DoJ litigation on GS and Libor.

Debate 3: What are the lasting implications on returns? • We expect payout ratios at JPM, BAC and C to rise from an average of 33% in 2014 to 67% in • A reappraisal of operational risk has required more capital 2018. and is influencing the regulatory debate. • In Europe we are below consensus on dividends • Operational risk RWAs rose to 21% of total RWAs in Q2 for CS, BARC, DBK, STAN and HSBC but ahead 2015 compared to ~14.5% in 2012. for UBS.

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

Insurance needs to embrace technology to stay competitive. Number of live mobile insurance services (Dec 2014): • 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. Source: GSMA, 2014 State of the Industry- Mobile Financial Services for the Unbanked • Mobile money has been growing, encouraging a culture of paying for goods and services on mobile. As GDP per capita increases, insurance penetration is likely to increase: • 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 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 globally delivers insurance. taken f rom Swiss Re 2013. 14 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 Addressing climate change and the investment implications August 12, 2015 Key external climate change risks 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 Source: C2ES, Morgan Stanley Research of a unified global carbon market. Morgan Stanley’s ESG Valuation Framework: Climate Change • 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. 15 Source: Morgan Stanley Research 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 Copper and Water: Expensive solutions July 22, 2015

Copper competes for increasingly scarce water resources More capital and higher opex lift incentive price and • Water is critical to copper production (e.g. crushing, flotation, reduce IRR transportation) • Additional US$2000-2,800/tonne to capital intensity and US$92/tonne uplift to annual operating costs • 78% of copper produced by the world’s 20 largest mines • To maintain a minimum unlevered project IRR of 15% (~40% global production) is in water challenged regions (pre-tax), this requires a US$0.18-0.23/lb increase in • Global demand for water will exceed supply by 40% in 2030 our current estimate of copper’s incentive price of • Structural shifts in copper mining (lower grades and rising US$3.05/lb (+6-8%) sulphur content) demand more water intensive processes. An additional US$0.18-0.23/lb is required for the copper incentive price Production and new projects already affected today Average Capital Intensity US 0.93 • Tia Maria mine, Peru – hampering construction Existing Ops Water Use Intensity (LpS/kt) 8.2 • Buenavista mine, Mexico – looking for alternative water Projects Water Use Intensity (LpS/kt) 5.9 sources % of Recycled Water (assume sample average) 171% • Los Bronces, Chile (Anglo American) – production below Required Water Extraction – Existing Ops (LpS/kt) 3.0 plan in 1H2015 Required Water Extraction – Projects (LpS/kt) 2.2 • Los Pelambres, Chile (Antofagasta) – longer permitting Existing Ops Required Capital (US$/t) 2,822 periods, production disruptions and delayed growth Projects Water Required Capital (US$/t) 2,019

Expensive desalination plants are the preferred solutions Min pre tax ROCE (%) 15% • Chilean law proposes a draft bill which requires mandatory Existing Ops Implied EBIT (US$/t) 423 use of desalinated water for certain mines (>150 litres (40 Projects Implied EBIT (US$/t) 303

gallons) of water per second) Add: Average Opex of running desalination plants (US$/t) 92 • Current projects in Chile include: Candelaria (Lundin Mining); Existing Ops Implied EBIT (US$/lb) 0.23 Esperanza (Antofagasta); Escondida (BHP Billiton and ); El Abra (Freeport-McMoRan). Projects Implied EBIT (US$/lb) 0.18 16

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 Investor Roadmap on Corruption June 2, 2015

Information on corruption is by definition hard to come by. Companies can invest in measures and strategies on • Transparency International’s Corruption Perception Index corruption to reduce the potential risk. provides a useful starting point. • Overall, we believe the most sustainable companies: − Have clear policies on bribery, including risk • However, corruption still occurs in areas of lower perceived assessments and internal monitoring risk. − Invest in developing a strong culture • Additional indices can help investors to develop a broader − Provide employee training. picture of the potential risk of corruption by country, e.g. – Global Competitiveness Index – TI Global Corruption Barometer (World Economic Forum) – Worldwide Governance Indicators () US FCPA enforcement actions by sector (2009- 2014)

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)

Source: US DOJ, US SEC, Morgan Stanley Research

17 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 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.

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. Large- Scale Integrated CCS Projects (LSIPs) by project lifecycle and region/ country What does CCS offer? A recap: Country Identify Evaluate Define Execute Operate Total As a clean technology, CCS offers a number of benefits: - 4 5 3 7 19 i. Functionality for a number of industries (power, CHINA 5 2 4 - - 11 cement, iron and steel) - 1 1 3 2 7 ii. Net negative emissions when combined with UNITED KINGDOM - 3 3 - - 6 biofuels AUSTRALIA - 2 - 1 - 3 iii. Ability to use fossil fuels without GHG emissions. KOREA - 2 - - - 2 NORWAY - - - - 2 2

ALGERIA - - - - 1 1 - - - - 1 1 NETHERLANDS - - 1 - - 1 SAUDI ARABIA - - - 1 - 1 UNITED ARAB EMIRATES - - - 1 - 1 Total 5 14 14 9 13 55

Source: Global CCS Institute 18 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 Technology Software & Services: The valuation impact of human capital April 30, 2015

Human capital is vital for the Software and Services Software companies are likely to see higher wage sector inflation than IT Services companies • Personnel accounts for c. 60% of operating costs. • Software: need for continuous innovation; intense • Particularly important in US and Europe competition for most talented employees. – less competition for human capital in • Services: shift towards offshoring helps companies manage personnel costs. It can impact company valuations in four ways Company actions to manage human capital • Wage inflation leading to higher operating costs. • Stock-based compensation. • Failure to recruit and retain employees can lead to growth constraints. • Incremental benefits such as flexible working hours, vacation, innovation projects. • Costs associated with employee turnover, training and recruitment. • Offshoring / outsourcing. • Productivity and cost impacts linked to relatively low/high employee engagement.

Employee cost inflation has been higher for Software versus Services

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%

Source: Company data, Morgan Stanley Research

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

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.

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

Criticality scores* % of Global Mineral % of Global Mineral Concentration on Production in Conflict Smelters/Refiners printed circuit board Environmental Vulnerability to Regions of Africa # of Global Mineral certified “conflict free” Mineral (parts per mn) Supply risk implications supply restriction (as of 2012) Smelters/Refiners or committed to be

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

Ti n ~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 quartiles 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

20 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 Sustainable Economics: The bitter aftertaste of sugar March 18, 2015 In regions where sugar consumption is higher than justified by Different sugar consumption tracks for DM/EM income levels, diabetes tends to be high too

• Evidence that sugar consumption is beginning to fall in DM. -250 Sugar Gap (kcal/pp, reverse lhs) 14 • However, signs that it will continue to increase in EM due to 12 population trends and rising sugar preference. 10 8 0 Direct and indirect costs of obesity and Type II diabetes 6 • It’s not clear whether sugar is directly linked to the rise of “diabesity” 4 but it has contributed to rising calorie imbalances. 2 • Total costs ~ 1-2% of a country’s GDP. 250 0 • Direct costs include medication, medical devices and healthcare

consultations. Oceania Caribbean South Am. South Central Asia Central Eastern Asia Eastern • Indirect costs linked to increased mortality, lost productivity at work East. Europe Western Asia Middle Africa Middle Southern Asia Southern Eastern Africa Eastern Western Africa Western Southern Africa Southern Northern Africa Northern Central America Central Western Europe

and reduced workforce. Southern Europe Northern Europe Northern America South-Eastern Asia South-Eastern Economic simulations to 2035 Source: FAO, IDF, Morgan Stanley Research The obesity & diabetes epidemic poses threat to future • Base case sugar scenario: GDP growth in OECD countries averages economic growth 1.8% p.a. over the next 20 years, vs. 2.3% p.a. estimate by OECD. 3.0% • Largest cumulative output losses in Chile, the Czech Republic, Mexico, the US, Australia and New Zealand. 2.5% • Smallest cumulative output losses in Japan, Korea, Switzerland, 2.0% France and Italy. 1.5%

1.0%

0.5% High Sugar Base Case Low Sugar 0.0% 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 21 Source: Morgan Stanley Research estimates 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

Feedback from Roundtables and Meetings

El Niño Tech Sector Field Trip Feedback Social Progress Index December 8, 2015 May 22, 2015 May 12, 2015

*We are currently experiencing a stronger than * Four technology companies told us how they’re * Aims to provide a tool for assessing progress in usual El Niño, w ith only the 1982 and 1997 El Niño addressing the many environmental/social impacts basic human needs, foundations of wellbeing and event ranking stronger since 1980. and opportunities of their products and supply opportunity across 133 countries – based on 12 chains. different components. *In Agriculture, palm oil has historically been the most sensitive to El Niño w ith a more variable * The most frequently recurring theme w as people * GDP alone doesn’t explain social progress: Social impact on grain and sugar. management, both of diversity in the talent pool as Progress Index is the only tool w hich exclusively w ell as of competitive talent retention. looks at social and environmental factors. *Warmer temperature in the United States has impacted both the Utilities and Speciality Retailers * Company boards tend to be interested in * European Commission is investigating if it should and Department Stores. sustainability issues around enterprise risk adopt the Social Progress Index to assist w ith management, natural resource use, supply chain regional development. It has already been adopted *The risk to the insurance sector comes from the management, and stakeholder engagement.0 by national and regional governments. impact on US hurricane activity and crop insurance.

Social Risks to Oil & Gas Companies ESG Risks in Global Apparel Supply Farm Animal Welfare (BBFAW) April 21, 2015 Chain March 12, 2015 April 13, 2015 * Companies’ licence to operate depends heavily on * Companies are increasing their communication on relationships w ith local communities and * Follow ing Rana Plaza tragedy in Bangladesh, this subject. stakeholders – sabotage to processes or theft can focus on improving safety and w orking conditions in * How ever it remains an “immature” business w ith result from poor relationships. garment factories around the country: 1500 facilities the overall level of reporting low . * Social risks can include unemployment rate, level inspected and corrective measures in place. * Challenges faced include price competition, of infrastructure and social services and capacity of * How ever, the industry remains inefficient: complexity of supply chains and lack of consensus local suppliers. technology and machinery is old; back office among NGOs and companies regarding KPIs. * Negative media campaigns, NGO action or functions too manual; illegal overtime and * Farm animal w elfare could be a good proxy for disruptions could be signs for investors to consider unauthorised subcontracting still commonplace. more general supply chain issues. w hen identifying projects at risk. * Investors must continue to engage w ith companies – The Higg Index launched by Sustainable Apparel Coalition is a useful tool.

22 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

Sustainability Themes

23 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

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.

Source: Morgan Stanley Research

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). 24 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

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

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. Markets customers in research, diagnostics, industrial, and applied markets a complete Thermo Fisher Scientific Inc. US Beuchaw, Steve OW 52,606 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 Martinez de Olcoz Cerdan, ADECOAGRO S.A. Argentina OW 1,574 Latam Farming based on Land transformation, diversification and commodity Jav ier Entel Chile Chile Morin, Michel EW 2,007 Telecommunications services Martinez de Olcoz Cerdan, Estacio Participacoes SA Brazil OW 1,334 Post secondary schools Jav ier Martinez de Olcoz Cerdan, Kroton Educacional, S.A. Brazil OW 5,181 Educational provider Jav ier Martinez de Olcoz Cerdan, OdontoPrev Brazil OW 1,629 Dev elops customised dental plans for corporate clients Jav ier Enagas 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

One of the largest pharmaceutical groups in China. Bulk drug products include vitamin C, CSPC Pharmaceutical Group China Hu, Yolanda OW 4,734 penicillin G and 7-ACA. Perusahaan Gas Negara Indonesia Maheshwari, May ank OW 4,832 Leading gas pipeline in Indonesia Lupin Ltd 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

Source: Morgan Stanley Research 25 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

ESG Integration: Framework

26 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

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.

27 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

Embedding Sustainability into Valuation – Example: Autos sector

TRADITIONAL ANALYSIS S+R ANALYSIS

Development of products that reduce costs for Environmental Impact customers and ensure compliance with legislation.

Product recalls could result in lost volumes over the Product Safety Economic activity; short and long term. globalisation; model Volume of units sold

penetration. Supply disruption and reputational risk could affect Supply Chain volumes.

Lost revenues/contracts post discovery of bribery Ethics and corruption.

x Technically advanced products may command a Environmental Impact higher price point. Inflation; competitive Revenue per unit dynamics; FX; mix. Product recalls may require selling prices to be Product Safety lowered. Governance -

R&D expenditure to ensure technically advanced Environmental Impact products.

Number of employees; wage inflation; fuel costs; Operating costs Fines payable. Ethics

maintenance costs.

Higher costs to improve supply-chain sustainability. Supply Chain -

Investment in production Investment in environmental technology to make Capital Investment Environmental Impact facilities. products more fuel efficient. -

Current tax rates; countries of Tax Appropriate tax payments to local governments. Ethics operation. -

Interest rates; amount of debt. Interest = FREE CASH FLOW x

Number of years of

operation ÷ Governance

Equity/debt split; cost of Discount Rate All risks above. Overall ESG Risk capital

Source: Morgan Stanley Research EQUITY VALUE 28

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

ESG Integration: Examples

29 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

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 Sector Title ESG Content Date Analysis of the impacts of the potential application Autos Autos & shared mobility: The First Autonomous City 01- Mar - 16 of fully autonomous transport Analysis of the impacts of the corporate governance Banks Cielo: View s from our S+R team 19- Feb- 16 risks 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

Analysis of the impacts of shared mobility and Autos Rethinking CAFE (Corporate average fuel economy) 02- Feb- 16 automated and autonomous driving on CAFE Analysis of the impacts of the European ruling Pharma Zoetis: Low ering EPS to reflect new tax guidance – potential risk to other MNCs 12- Jan- 16 regarding tax incentives in Belgium Autos Volksw agen: Too many uncertainties Analysis of the impacts of the emissions scandal 12- Jan- 16 Analysis of the impacts of the Chinese anti-graft Consumer China Anti-graft: A necessary evolution 15- Dec - 15 campaign 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 Analysis of the impacts of greater drug price Pharma Global Insight: Navigating an environment w ith greater drug price scrutiny 01- Oct- 15 scrutiny Analysis of the impact of the National Living w age Retail UK Food Retail: UK living w age – Moving into focus 18- Sep- 15 for food retailers Analysis of the impact of demographics on the Economics Global issues: Could demographics reverse three multi-decade trends? 15- Sep- 15 economy North America Insight: Sustainability Report: Raising NKE, HBI and VFC Price Introduction of Sole Sustainability Index for North Retail 20- Aug- 15 Targets American Branded Apparel and Footw ear Analysis of the potential impact of the coal Utilities & Mining Coal: Divestment Policy Gathering Steam? 05- Jun- 15 divestment campaign Rising environmental scrutiny to increase capital Mining Antofagasta (ANTO.L): A pricey standstill – dow ngrade to UW 28- Apr- 15 intensity and reduce volume CAGR. 30 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

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) 31 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

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

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 – Reaffirm 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 tariff 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

32 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

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

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

33 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

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

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: Pos tNL 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

34 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

Appendix

35 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

MS Equity Research – Our approach to Sustainable + Responsible Investing

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, , 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 36

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

ESG Communications

Field Trips Expert Speakers

• 3-day trip to Bangladesh to understand • Global business initiative on human developments in the Ready Made rights Garment industry • Carbon Tracker: Stranded Assets • Light & Building Fair, • Oxfam: Land Policies in the Food and • Palm Oil Field Trip, Asia Beverage sector • Norsk Hydro trip to visit energy efficient • Social Progress Index smelter • Business School: Employee • Tech Bus Trip in Satisfaction and Stock Returns

ESG Communication with Investors Corporate Roadshows Stock Analyst Meetings

• Companies include BASF, Burberry, • Executive Compensation (US Telcos, EADS, SAP, Swiss Re, AXA, Nordea, US Healthcare) HSBC, Nestle, BMW, FEMSA and G4S. • Stranded Assets (EU Oil and Gas) • ESG Frameworks (Utilities, Retail, Airlines, Mining, Oil & Gas).

37 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

S+R Investment Research – Weekly news flow

SEPTEMBER 4 , 2015 Sustainability Spotlight: This Week’s Global Research, News and Events M ORGAN STANLEY RESEARC H

Download the complete report

Our w e e kly 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 financial crisis. This follow s from our recent report w ith the banks team w hich explores how the banks are responding post litigation. MORGA N STA NLEY RESEA RCH A stronger than usual El Niño is expected in the coming months. We published a report Global 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 S+R Te am : for global Agricultural markets and the Agricultural and Insurance sectors. In Agricultural Jessica Alsford, CFA markets, palm oil prices have been the most sensitive. The high concentration (85%) of global [email protected] +44 (0) 20 7425 8985 palm oil production in Malaysia and Indonesia, w hich tend to experience drought during El

Niño, renders the market vulnerable to supply disruption. Eva Zlotnicka Ev [email protected] Finally, shareholder activism is becoming an important driver for the industrials group. +1 212 761 4075 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 Victoria Chapelow investors suggest key criteria include business focus, returns, cost, value and leverage [email protected] potential; European Capital Good stocks are then assessed on these 5 metrics. Overall, +44 (0) 20 7425 6651 operationally scope for change is positive but outcomes for investors can be quite mixed. Sustainable Economics European Cap Goods Activist Scorecard Ranking Carmen Nuzzo [email protected] +44 (0) 20 7677 0209 100% 90% 80%

70% 60%

50% 40% 30% 20% 10% 0% 38

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

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 affiliates. As used in this disclosure section, Morgan Stanley includes RMB Morgan Stanley (Proprietary) Limited, Morgan Stanley & Co International plc and its affiliates. 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 listed 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 Subj ect 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, 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., Veol ia 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 Airlines 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, 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 Billiton 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 Airlines 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 servi ce s from ADECOAGRO S.A., Agilent Technologies, Inc., Anglo American, Bank of America, Barclays Bank, BHP Billiton 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 Airlines Inc., Standard Chartered, T hermo Fisher Scientific Inc., Towngas China, UBS Group AG, UCB S.A., Veolia Environnement, Welltower Inc..

39 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

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 Billiton 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 Airlines 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 Billiton 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 Billiton 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 affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, includi ng market making, providing liquidity, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from custo mers 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 holdi ngs) 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.

40 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

Disclosures

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanl ey 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 line with the average total return of the analyst's industry (or industry team's) coverage universe, on a ri sk-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 View s 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 line 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 affiliates, 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 could create a conflict of interest. Other Important Disclosures Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Agilent Technologies Inc., Anglo American, Bank of America, Barclays Bank, BHP Billiton Limited, Constellation Brands Inc, Credit Suisse Group, Delta Air Lines, Inc., Deutsche Bank, ENGIE, Freeport-McMoRan Inc, Goldman Sachs Group Inc, HeidelbergCement AG, HSBC, J.P.Morgan Chase & Co., LafargeHolcim, Mondelez International Inc, Nestle, Rio Tinto Ltd, Stagecoach Group PLC, 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. Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For all research available on a particular stock, please contact your sales representative or go to Matrix at http://www.morganstanley.com/matrix. Morgan Stanley Research is provided to our clients through our proprietary research portal on Matrix and also distributed electronically by Morgan Stanley to clients. Certain, but not all, Morgan Stanley Research products are also made available to clients through third-party vendors or redistributed to clients through alternate electronic means as a convenience. For access to all available Morgan Stanley Research, please contact your sales representative or go to Matrix at http://www.morganstanley.com/matrix. 41

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

Disclosures Any access and/or use of Morgan Stanley Research is subject to Morgan Stanley's Terms of Use (http://www.morganstanley.com/terms.html). By accessing and/or using Morgan Stanley Research, you are indicating that you have read and agree to be bound by our Terms of Use (http://www.morganstanley.com/terms.html). In addition you consent to Morgan Stanley processing your personal data and using cookies in accordance with our Privacy Policy and our Global Cookies Policy (http://www.morganstanley.com/privacy_pledge.html), including for the purposes of setting your preferences and to collect readership data so that we can deliver better and more personalized service and products to you. To find out more information about how Morgan Stanley processes personal data, how we use cookies and how to reject cookies see our Privacy Policy and our Global Cookies Policy (http://www.morganstanley.com/privacy_pledge.html). If you do not agree to our Terms of Use and/or if you do not wish to provide your consent to Morgan Stanley processing your personal data or using cookies please do not access our research. Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of an investment or strategy will depend on an investor's circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Morgan Stanley Research is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless o therwise stated, the closing price on the cover page is that of the primary exchange for the subject company's securities/instruments. The fixed income research analysts, strategists or economists principally responsible for the preparation of Morgan Stanley Re se arch have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts', strategists' or economists‘ compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. The "Important US Regulatory Disclosures on Subject Companies" section in Morgan Stanley Research lists all companies mentioned where Morgan Stanley owns 1% or more of a class of common equity securities of the companies. For all other companies mentioned in Morgan Stanley Research, Morgan Stanley may have an investment of less than 1% in securities/instruments or derivatives of securities/instruments of companies and may trade them in ways different from those discussed in Morgan Stanley Research. Employees of Morgan Stanley not involved in the preparation of Morgan Stanley Research may have investments in securities/instruments or derivatives of securities/instruments of companies mentioned and may trade them in ways different from those discussed in Morgan Stanley Research. Derivatives may be issued by Morgan Stanley or associated persons. With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in Morgan Stanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel. Morgan Stanley Research personnel may participate in company events such as site visits and are generally prohibited from accepting payment by the company of associated expenses unless pre-approved by authorized members of Research management. Morgan Stanley may make investment decisions that are inconsistent with the recommendations or views in this report. To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decisions. Morgan Stanley Research may not be distributed to the public media or quoted or used by the public media without the express written consent of Morgan Stanley. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities/instruments. MSTL may not execute transactions for clients in these securities/instruments. To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated activities in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong sales representatives. Morgan Stanley is not incorporated under PRC law and the research in relation to this report is conducted outside the PRC. Morgan Stanley Research does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors shall have the relevant qualifications to invest in such securities and shall be responsible for obtaining all relevant approvals, licenses, verifications and/or registrations from the relevant governmental authorities themselves. 42 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

Disclosures Morgan Stanley Research is disseminated in Brazil by Morgan Stanley C.T.V.M. S.A.; in Mexico by Morgan Stanley México, Casa de Bolsa, S.A. de C.V which is regulated by Comision Nacional Bancaria y de Valores. Paseo de los Tamarindos 90, Torre 1, Col. Bosques de las Lomas Floor 29, 05120 Mexico City; in Japan by Morgan Stanley MUFG Securities Co., Ltd. and, for Commodities related research reports only, Morgan Stanley Capital Group Japan Co., Ltd; in Hong Kong by Morgan Stanley Asia Limited (which accepts responsibility for its contents) and by Bank Morgan Stanley AG, Hong Kong Branch; in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore (which accepts legal responsibility for its contents and should be contacted with respect to any matters arising from, or in connection with, Morgan Stanley Research) and by Bank Morgan Stanley AG, Singapore Branch (Registration number T11FC0207F); in Australia to "wholesale clients" within the meaning of the Australian Corporations Act by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services license No. 233742, which accepts responsibility for its contents; in Australia to "wholesale clients" and "retail clients" within the meaning of the Australian Corporations Act by Morgan Stanley Wealth Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813, which accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India Company Private Limited; in Indonesia by PT Morgan Stanley Asia Indonesia; in Canada by Morgan Stanley Canada Limited, which has approved of and takes responsibility for its contents in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main and Morgan Stanley Private Wealth Management Limited, Niederlassung Deutschland, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley Research has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the US by Morgan Stanley & Co. LLC, which accepts responsibility for its contents. 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 affiliates. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited. The information in Morgan Stanley Research is being disseminated by Morgan Stanley Saudi Arabia, regulated by the Capital Market Authority in the Kingdom of Saudi Arabia , and is directed at Sophisticated investors only. Morgan Stanley Bank AG currently acts as a designated sponsor for the following securities: Deutsche Bank. Morgan Stanley Hong Kong Securities Limited is the liquidity provider/market maker for securities of HSBC listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to which this research relates will only be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regul ated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Custo mers as defined by the QFCRA. As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided exclusively to persons based on their risk and income preferences by the authorized firms. Comments and recommendations stated here are general in nature. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations. The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties or representations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanl ey. © 2016 Morgan Stanley

43 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

The Americas Europe Japan Asia/Pacific 1585 Broadway 20 Bank Street, Canary Wharf 4-20-3 Ebisu, Shibuya-ku 1 Austin Road West New York, NY 10036-8293 London E14 4AD Tokyo 150-6008 Kowloon United States United Kingdom Japan Hong Kong Tel: +1 (1) 212 761 4000 Tel: +44 (0)20 7425 8000 Tel: +81 (0)3 5424 5000 Tel: +852 2848 5200

©2015 Morgan Stanley

44