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Sustainable Investments –

Investing with a perspective

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Contents

Preface:

Sustainability as a key principle 3

General facts:

Success and stability since 1870 4

Sustainable business development:

Opportunities for companies that are well prepared for future challenges 5

Responsibility at Zürcher Kantonalbank:

Sustainability as a business principle 6 – 7

Sustainability research:

Rigorous selection of the best in class 8 – 11

Sustainable investment products:

Tailor-made diversification 12

Our partnerships and memberships:

Strong alliances for responsible actions 13 – 14

Zürcher Kantonalbank’s recipe for success:

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Preface:

Sustainability as a key principle

Zürcher Kantonalbank has been promoting sus-tainability measures for many years: in its business operations and public commitments as well as with its clients and products. This effort is also driven by our commitment to remain competitive in the long term.

The market of sustainable investments boasts solid growth and success potential, which is mainly at-tributable to the competitive performance of the respective products. With sustainable investment products, we are able to combine client satisfaction with growth as well as environmental and social responsibility. Based on this principle, we have com-mitted to being among Switzerland’s leading banks in sustainable investment as early as in 2008. We have implemented this goal by continually expanding our product range. Today, we are able to cover a broad range of client needs.

At Zürcher Kantonalbank, we combine proximity to our clients, competence and responsibility in a unique manner. We are thus able to present our institution as a trustworthy and reliable partner for sustainable investments.

We hope that you, too, will choose to include our sustainable products in your efforts to reaching your investment targets.

Kind regards

Martin Scholl

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General facts:

Success and stability since 1870

Founded by the Canton of Zurich as a “bank for the people of Zurich” in 1870, Zürcher Kantonalbank has continued to evolve even during economically challenging times. Today, Zürcher Kantonalbank ranks among Switzerland’s largest and most success-ful universal banks.

Successful business model with stable revenue sources.

The financial crisis that began in 2007 has created uncertainty and shaken confidence around the globe. Zürcher Kantonalbank’s business model, based on revenue diversification and sustainability, has proven successful even amid times characterized by a global loss of confidence: The interest, trade and commission business provides solid earnings even in turbulent waters.

Award-winning leadership position.

With a balance sheet totaling CHF 125 billion, Zürcher Kantonalbank is Switzerland’s largest Cantonal bank and one of the leading financial services providers in the greater Zurich area. The bank was awarded triple-A ratings by Standard & Poor’s, Fitch and Moody’s.

Universal bank with solid roots and a global network.

Zürcher Kantonalbank is a universal bank that is rooted in Zurich’s economic area. It is outstandingly positioned and has access to a reliable global net- work. It boasts strong client and employee loyalty as well as a solid financial basis: the Canton of Zurich bears responsibility for all liabilities should the bank‘s resources prove inadequate. This cantonal guarantee acts as a stabilizing force for the financial market as a whole, particularly in times of economic uncertainty.

Economic, social and environmental commitment.

The business activity of Zürcher Kantonalbank does not differ substantially from that of other banks. Still, one matter sets it apart from the rest: Based on the legally established public mandate, Zürcher Kantonalbank actively contributes to fulfilling tasks fundamental to the economy and to society in the Canton of Zurich and supports an environmentally friendly development.

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Sustainable business development:

Opportunities for companies that are

well prepared for future challenges

Sustainable development is a development that meets the needs of the present without compromis-ing the ability of future generations to meet their own needs. In other words, in order to achieve sus- tainable economic growth, everyone involved must take economic, societal and environment matters into account, thus helping to preserve fundamental resources for future generations.

Basic conditions for sustainable companies.

When it comes to implementing sustainable growth, companies must meet the following criteria in order to be ready for future challenges:

1. They assume environmental responsibility and avoid resource depletion as well as harmful emissions while optimizing their products and services accordingly. 2. They assume social responsibility and take action

for their employees and other key stakeholders. 3. They assume economic responsibility by being

financially successful and offering a solid long-term profit outlook.

Sustainability as a corporate strategy.

A growing number of companies consciously focus on sustainability. As a result, sustainable development is no longer just a buzzword, but rather a strategy that requires a new kind of entrepreneurship that is in line with the above-mentioned conditions and focuses not only on issues such as climate change and a careful man-agement of scarce resources, but also on matters such as employee satisfaction and corporate governance.

Sustainability drivers

An estimated nine million people will live in Switzerland in 2035, while the world‘s population is expected to grow to more than nine billion people by 2050. Global population growth results in rising demand for goods and services and takes an increasing toll on our planet’s natural resources and the environment. In addition, this growth creates new consumer needs and markets, as highlighted by the developments in the health care sec-tor related to the ageing of the population. At the same time, climate change and energy supply matters be-come more pressing. All of these challenges represent economic risks and opportunities at the same time.

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Responsibility at Zürcher Kantonalbank:

Sustainability as a business principle

Zürcher Kantonalbank is convinced that long-term economic success can only be achieved when a company is willing to assume environmental and so- cial responsibility. This interpretation of sustain- ability is a core business principle in our co-operation with clients and partners. Zürcher Kantonalbank aims at being the leading bank in terms of sustainability. Sustainability in business operations, product range and sponsoring.

Zürcher Kantonalbank began to adopt measures to protect the environment in its business operations in the early 1990s. The environmental management system has been certified according to ISO 14001 in 2002 and has last been re-certified in 2014. The granting of loans has been subject to an environmen-tal risk review for many years, and in the business area of investments, we provide sustainable invest-ment products for private and institutional clients. Ecologically innovative and environmentally benefi-cial building projects are given preferential mortgage terms. We also support small and medium-sized enterprises to which the implementation of envi-ronmentally friendly measures represents a major challenge in terms of human and financial re- sources. We also take action for sustainable projects and institutions in the Canton of Zurich, for example with sponsoring activities for the Zoo Zurich or the Limmat-Auenpark Werdhölzli.

Independent quality control.

In 2009, Zürcher Kantonalbank was one of the first European universal banks to sign the PRI (Principles for Responsible Investments). In order to take this comprehensive financial market-relevant environ-ment, social and corporate governance principles a step further, Zürcher Kantonalbank launched the Sustainability Indicator in 2011. The indicator rates the sustainability of investment funds and makes client portfolios even more transparent.

Graph 1: Sustainability as an integrated business principle Clients Suppliers & Partners Public Economy Environment Society Employees Owners

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Zürcher Kantonalbank’s sustainability milestones

1992 Introduction of Environment savings account and environmental loans

1995 Signature of UNEP* banking declaration 1996 Set-up of sustainability research (further

mile-stones in the area of sustainable investments see Graph 2)

2002 Certification of environmental management standards according to ISO 14001

2009 Signature of the United Nations‘ Principles for Responsible Investments (PRI)

Comprehensive sustainability product range.

Zürcher Kantonalbank realized early on that sustain- able investments offer attractive opportunities for investors: In 1996, it launched one of the first and, by now, one of the most comprehensive sustainability research platforms in Europe. Since 1998, the bank offers sustainable investment products with external partners. In 2003, Zürcher Kantonalbank offered its first proprietary sustainable institutional fund, with the first proprietary sustainable public fund following in 2007. Today, the bank ranks among the leading providers of sustainable investment solutions for pri- vate and institutional clients in Switzerland. Zürcher Kantonalbank submits these products to a compre-hensive evaluation of sustainability criteria.

Graph 2: Sustainable investments of Zürcher Kantonalbank since 1996

1996 1998 2003 2005 2007 2008 2009 2010 2011 rc her Kantonalbank’ s sustainability r esear ch

ZKB Investment funds ZKB Structured products Investment products with external providers 1999

Sustainable Investment Fund Equities World

First sustainability products – Asset management mandate

– Institutional Equity fund

Sustainable Investment Fund Climate and Water Sustainable Investment Fund Equities Emerging Markets ZKB MeinIndex Sustainability according to Regions (Emerging Markets) ZKB Meinndex Sustainability Themes First sustainable retail fund ZKB Strategy funds Sustainability ZKB Fund

Innova-tors & Income Sustainability First structured sustainability

product (Sustainability Basket Innovators)

Sustainable Investment Fund Balanced * United Nations Environmental Program

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Sustainability research:

Rigorous selection of the best in class

Since 1996, a team of specialists of Zürcher Kanto- nalbank compiles analyses and ratings of equities and bonds in terms of environmental, social and corpo-rate governance criteria. This sustainability research is performed on a global scale and based on system-atic selection criteria that allow the identification the most sustainable companies and debtors.

Sustainability research with proven specialists.

Generally, our analysts are specialists in the areas of environmental and forestry sciences, business administration and economics. In addition, the team is highly skilled in terms of financial analysis and looks back on broad-based professional experience. Based on their backgrounds, they specialize in spe- cific sectors or themes and readily share their know-how with clients of Zürcher Kantonalbank.

Award for Socially Responsible Investing

In 2014, Zürcher Kantonalbank was presented with the FERI Award for being the best asset manager in the Socially Responsible Investing category. FERI EuroRating Services AG selected the best investment funds and fund management companies from the German-speaking world, and Zürcher Kantonal-bank’s asset management won against the 240 other providers evaluated.

The analysis process at a glance.

The experts of Zürcher Kantonalbank carry out a sustainability criteria analysis for equities and bonds. For both asset classes, the specialists select the most sustainable representatives according to a compre-hensive test procedure involving a set of stringent exclusion criteria. The company and debtor selection is subject to a highly detailed process that takes environmental, social and corporate governance criteria as well as product and sector aspects into account. Furthermore, the analysts investigate wheth-er the selected companies or debtors have made negative news in the worldwide media. Figures re- lated to reputational risks are also examined. The result of this analysis is the sustainable investment universe, which is again subjected to a systematic financial analysis and title selection by the experienced sustainability specialists of our Portfolio Manage-ment, who then define the sustainable investment product portfolio.

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Selection of companies and debtors: Tailor-made analysis process (positive criteria)

In this part of the selection process, our analysts ana-lyze three groups: Industry leaders, innovators and sustainable debtors. The companies and debtors that did not meet any exclusion criteria are reviewed in detail in terms of their activities and services. Our ana- lysts select them using our best-in-class or our inno- vator approach.

Best-in-class means that the companies are better at living up to the sustainability requirements than their competitors in the same sector and global region. In other words, a company that consumes less energy per production unit is awarded a higher ranking. Inno-vators, meanwhile, are mainly analyzed based on the sustainability of their products and services. Debtors are rated according to their category.

Exclusion criteria: Consistently applied (negative criteria)

In order to define the range of sustainable prod-ucts, our analysts apply a selection of very stringent exclusion criteria. The exclusion criteria make sure that our clients do not invest in companies that contribute to the world’s most serious environmental problems and social risks. Further problem areas such as the compliance with the prohibition of child labor or of ILO principles are reviewed in the analysis and monitored constantly.

Graph 3: Overview of the sustainability analysis process

Exclusion criteria

Zürcher Kantonalbank's equity and bond universe

Media research

Title selection Financial analysis

Sustainable investment universe

Regular checks

Industry leaders Innovators Sustainable debtors

Sustainable investment product

Sustainability

analysis

1

2

3

Global risks Exclusion criteria

Climate change  Extraction of fossil fuels

 Operation of fossil-fuel power stations  Production of cars and aircrafts Depletion of the

ozone layer

 Production of substances that deplete the ozone layer

Loss of biodiversity  Production of persistent organic pollu-tants (POP)

 Forestry without FSC certification  Fishing without MSC certification Nuclear energy  Nuclear power plants and permanent

disposal sites for nuclear waste  Production of nuclear reactors Genetic technology  Release of genetically modified

orga-nisms

Social problems  Production of Arms

 Production of tobacco and smoking products

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 Selection of sustainable debtors

Zürcher Kantonalbank classifies debtors in four categories. In each category, only those representa-tives are taken into consideration for the invest-ment universe that are best at assuming social and environmental responsibility.

– Public and private companies: Evaluation according to the industry leader process for equities.

– Nations, Cantons and federal states: Evaluation according to quantitative and qualitative analyses with comprehensive indicators for various environ-ment and social themes.

– Cities: Evaluation of environment and social as-pects that are relevant to cities and that they can influence (e.g. traffic, education, integration). – Supranational institutions: Evaluation of the core

financing purpose and the social and environment guidelines that they have set for themselves.

Media research to verify the sustainability analysis

With a keyword search in thousands of sources worldwide, the analysts research whether a com-pany has made negative news. This media research also focuses on environmental (damages, accidents, contraventions of environmental legislation) and social aspects (social standards, human rights violations). In order to quantify a company’s exposure to social and environmental aspects, the analysts apply the RepRisk® index (RRI), a risk (not a reputation) mea- sure that regularly compiles reviews on a company or project.

 Selection of industry leaders

“Industry leaders” are those large cap companies in their respective industries and regions that set an example by excelling at taking responsible actions in terms of environmental protection and social issues. The selection of industry leaders is based on a multi-step process. The quantitative analysis com- pares roughly 50 environmental, social and cor-porate governance indicators. The data is obtained from specialized providers (such as Asset4, Trucost, MSCI GMI or RepRisk). Then, we carry out a product and sector analysis, which is mainly built on the know-how, experience and industry-specific knowledge of our analysts.

 Selection of innovators

Graph 4: Selection of industry leaders according to ESG data, i.e. environment, social aspects and corporate governance

Exclusion criteria

Product and sector analysis Sustainable investment universe E – Environment Environmental data Carbon emissions Water consumption Waste generation Environmental management Environmental responsibility Supplier aspects S – Social Reputational risks Working conditions Diversity of employees Health and safety Relationship with stakeholders Human rights G – Governance Corporate ethics Shareholder rights Remuneration Responsibility of management bodies Transparency Control systems Reporting

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Introducing a current industry leader:

J Sainsbury, Retail

Introducing a current innovator:

Meyer Burger Technology, Capital Goods

Introducing a current sustain-able debtor:

The City of Stockholm

J Sainsbury is one of the UK’s leading food retailers and has a market share of approximately 16 percent.

Sainsbury promotes regional products and offers more than 450 organic products.

With sales of GBP 280 million and a market share of 25 percent in Great Britain, Sainsbury is the world’s largest retailer for fair-trade products according to the Fairtrade Foundation.

By 2012, Sainsbury intends to reduce its carbon emissions per square foot of retail space by 25 percent compared to 2005/06. In 2010, Sainsbury has successfully completed its plan to create 6,500 new jobs with an ambitious expan-sion of its retail store network.

Meyer Burger Technology is a supplier of machinery and system solutions for wafers, cells and modules for the photovoltaics industry.

By producing electrical energy using photovoltaics, Meyer Burger makes a substantial contribution to reducing greenhouse gas emissions.

Meyer Burger has introduced wafering with diamond wire that makes the processes and wafers more efficient.

With the sale of diamond wires, the company plans to expand its business activities and to benefit from its clients’ increased effi-ciency.

Meyer Burger’s main goal is to reduce client costs, and ultimately the kilowatt-hour cost of solar electricity, to or below grid parity.

The city of Stockholm received the EU Commission’s “European Green Capital” award in 2010. The Stockholm City Council has been in charge of adopting environmental programs since the mid-1970s. Its current program sets six goals: Environmentally friendly transport; Goods and buildings free of dangerous products; Sustainable energy use; Sustainable use of land and water; Waste treatment with minimal environmental impact; and A healthy indoor environment. Sweden’s capital aims at becoming free of fossil fuels by 2050. To this end, Sweden promotes district heating power plants and a higher percentage of biofuels in the pro-duction of district heat. In addi-tion, the introduction of a road toll system targets a growing number of environmentally-friendly cars as well as the promotion of bicycles and public transport.

Stockholm has introduced an inte-gration program to promote friendly co-existence as early as in 1997 and ranks among Europe’s leaders in terms of education and training.

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Sustainable investment products:

Tailor-made diversification

In order to participate in the performance of sustain-able companies and promising sustainability themes in a compact manner, we recommend broadly diver-sifying your sustainability investments. Investment funds are particularly well suited for this purpose. With funds, clients are able to invest in an interesting selection of sustainable companies with compara-tively small sums.

Diversified sustainable investment products.

Zürcher Kantonalbank is a specialized provider of sustainable investment products in the areas of equities and bonds. The products are well diversified in terms of themes and regions, making sure that the various client needs are fully met. Our clients can count on a portfolio management team that looks back on many years of experience in the management of sustainable investments. The portfolio managers review Zürcher Kantonalbank’s sustainable investment universe and select the most attractive titles for our clients – in other words, the titles that scored highest in our comprehensive sustainability research.

Sustainability indices for equities.

In line with our business principles, we commit not only to economic profits, but also to social and environmental benefits. Accordingly, we map out the performance of themes and regions in so-called sustainability indices that are broken down into three main categories (energy, resources and mobility) and the world regions (e.g. Emerging Markets). With a view to themes, we select companies that make the most immediate contribution to solving the key challenges of the twenty-first century while at the same time benefiting from the economic opportunities. As such, they offer interesting alternative to those industries and companies that were excluded from the selection process due to the stringent exclusion criteria and that are generally not part of the investment universe, e.g. nuclear energy or fossil fuel. In the regional and global view, the companies are subject to our best-in-class evaluation approach.

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Our partnerships and memberships:

Strong alliances for responsible actions

Zürcher Kantonalbank takes action for an ongoing expansion of sustainable investment products in various organizations and partnerships.

The six PRI (the United Nations’ “Principles for Re-sponsible Investment”) are financial market-relevant environment, social and corporate governance crite- ria. In 2009, Zürcher Kantonalbank was one of the first European universal banks to sign the PRI. The CCRS Center for Corporate Responsibility and Sustainability is a research institute jointly run by the University of Zurich and the Swiss economy. The key focus is on analyzing how sustainability criteria contribute to a company’s or an investment product’s performance.

The FNG (Forum Nachhaltige Geldanlagen), founded in 2001, is the industry association promoting sustain- able investment in Germany, Austria and Switzerland. Its aim is to promote the development, transparency and quality of sustainable financial products. Its corpo- rate members include banks, investment companies, insurance companies, rating agencies, asset manag-ers and NGOs.

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Asset4 provides economic, environmental, social

and corporate governance information based on more than 250 performance indicators.

Factiva is a database for media, corporate and eco-

nomic information. The media pool combines more than 30,000 sources from 200 nations in 26 languag-es, including newspapers, magazinlanguag-es, image data-bases and more than 700 news agencies.

MSCI GMI’s corporate governance research process

examines company events and corporate behavior as well as governance structure, providing data and analysis on 6,000+ global companies.

RepRisk monitors independent third-party sources

such as print media, NGOs, newsletter, government agencies and blogs and provides a daily review of a company’s or project’s risk exposure in terms of environmental, social and corporate governance criteria.

Trucost monitors the activities and their

environ-mental consequences of more than 4,000 compa-nies.

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Zürcher Kantonalbank’s recipe for success:

Combining Return and Responsibility

Zürcher Kantonalbank has committed to being Switzerland’s leading bank in terms of sustain-ability.

With its Sustainability product line, Zürcher Kantonalbank offers a broad range of sustain-able investment products.

Zürcher Kantonalbank’s sustainability research was introduced in 1996 and is highly regarded by its clients and the industry alike.

Zürcher Kantonalbank has strong alliances to continue to develop its range of sustainable investment products.

For further information, please contact your client advisor or:

Zürcher Kantonalbank +41 (0)844 843 823 www.zkb.ch

This Publication is for information purposes only and does not explicitly target any person who by domicile or nationality is prohibited to receive such information according to ap-plicable law. This document was produced by Zürcher Kantonalbank (“ZKB”) applying highest diligence standards in good faith. ZKB does not warrant any guarantee with regard to correctness and completeness and waives any claim for losses that may occur through the use of this information. This Publication is neither an offer nor a recommendation for the purchase or sale of financial products or financials services and does not discharge the recipient from his own judgement. Particularly, ZKB recommends that the recipient, if need be by consulting professional guidance, assess the information in consideration of his personal situation with regard to legal, regulatory and tax consequences that might be invoked. The present document is not the result of the department “financial analysis” as defined in the rules of the “Directives on the Independence of Financial Research” edited by the Swiss Bankers Association, hence these rules do not apply to this document.

This document is for distribution and / or redistribution only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc”) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securi-ties may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.

This publication and the information contained in it must not be distributed and / or redistributed to, used or relied upon by, any person (whether individual or entity) who may be a US person under Regulation S under the US Securities Act of 1933. US persons include any US resident; any corporation, company, partnership or other entity organized under the any law of the United States; and other categories set out in Regulation S.

This document does not constitute an offer to sell or a solicitation or invitation is to subscribe for or to make an offer to buy any securities, nor does it provide a basis for any contract or obligation of any kind. This document is not a prospectus within the meaning of article 652a or 1156 the Swiss Code of Obligations or Article 27 of the listing rules of SIX Swiss Exchange AG.

Copyright © 2012 Zürcher Kantonalbank. All rights reserved.

Sustainability has been a core element of Zürcher Kan-tonalbank’s business philosophy since the early 1990s.

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