2021 ESG Annual Report

ESG ADVISORY COUNCIL MEMBERS

Vijay Advani Former Executive Chairman of Nuveen, the Investment Management arm of TIAA, and current Chairman of the U.S.-India Business Council Global Board of Directors

Ben Caldecott Director, Oxford Sustainable Finance Program & Founding Director of the UK Centre for Greening Finance & Investment

Mindy Lubber President and CEO of Ceres, a sustainability focused non-profit organization based in Boston, MA

George Serafeim Charles M. Williams Professor of Business Administration and Chair of the Impact-Weighted Accounts Project at Harvard Business School

Theresa Whitmarsh Former Executive Director of the Washington State Investment Board and Chair of the Board of Directors, FCLT (Focusing Capital on the Long Term) Global

ESG Advisory Council In 2021 we established the NB ESG Advisory Council to guide our ESG investing journey. Our expert Advisory Council members provide guidance on the future of impact investing and sustainability topics, and challenge us to go further in our own efforts. The Council particularly focused in 2021 on the topic of net-zero investing.

In its inaugural year, the Advisory Council provided feedback on our decision to join the Net Zero Asset Managers Initiative. They provided valuable guidance on how to adapt net-zero alignment methodologies across asset classes, the role of climate solutions, and the impact of climate policy and regulation. Advice from our ESG Advisory Council Members on Net-Zero Alignment Under the Net Zero Asset Managers Initiative, we have one year to set an interim net-zero target, but portfolio managers and clients are asking for guidance now. What should we consider in selecting an implementation methodology? It is important to set absolute carbon reduction targets to realize emissions reductions for sectors and companies. We favor erring on the side of ambition in picking a target methodology, and thus recommend a carbon reduction and portfolio coverage approach.

Temperature alignment is another methodology often considered by asset managers, but the complexity of climate forecasting may result in misleading outcomes. A target methodology must be flexible and portable across geographies. If it includes an engagement element, the portfolio manager must be willing to divest if there is no clear improvement over a set timeframe. What is a portfolio’s “fair share” of the 50% required reduction in GHG emissions by 2030? Should it be determined by responsibility for emissions or capability to reduce emissions? Decarbonization pathways should be based on a capability approach, given available technologies, so portfolio managers must stay on top of emerging low carbon technologies within sectors. Cost-efficiency is important. For example, it is difficult for carbon-intensive sectors that are cyclical and lower margin (e.g., airlines) to decarbonize. Investors should be aware of each sector’s marginal abatement cost curve and understand the potential impact of decarbonization on corporate returns over time. Investors should

6 2021 ESG ANNUAL REPORT

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