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      Environmental,
      Social and Governance

      Our ESG Commitment

      A purpose-driven investment approach

      Since our first application of “avoidance screens” in the 1940s to the launch of our Socially Responsive Investment team in 1989, Neuberger Berman has been on the forefront of integrating environmental, social and governance (ESG) criteria into the investment process. We have continued to build upon this legacy, driven by our belief that companies with proactive leadership strategies in place to manage ESG-related risks and opportunities have the potential to be industry leaders with sustainable competitive advantages and thus offer the potential for long-term investment outperformance.

      Today, all of our investment teams access ESG research and can apply an ESG lens to their processes. As of December 31, 2016, more than 30% of our assets under management have explicit ESG criteria.

      To drive continued improvement in the ESG space, in 2012 we became signatories to the UN-sponsored Principles for Responsible Investment (PRI) and also established an in-house ESG Committee. Led by Joe Amato, President of Neuberger Berman and CIO of Equities, the committee is responsible for setting goals, measuring our performance, and furthering our ESG expertise. We take seriously engagement across economic and ESG matters, be it in direct meetings with management, engagement with boards of directors or as part of the proxy-voting process with the companies whose securities we own.

      Additionally, the firm participates in a number of organizations focused on ESG multi-stakeholder initiatives, including:

      • Carbon Disclosure Project (CDP)
      • CDP Water and Carbon Action
      • U.S. SIF—The Forum for Sustainable and Responsible Investment
      • The Sustainable Investment Research Analyst Network (SIRAN)

      SRI and ESG

      Defining popular terms like ESG, triple bottom line, sustainability and misconceptions about socially responsive investing with Ingrid Dyott, Portfolio Manager, The SRI Team.

      ESG in action

      Case study

      Environmental: Solar – A Deep Dive
      Neuberger Berman team hosted a series of ‘deep dive’ meetings to investigate solar power and implications for the broader energy markets.

      The S&P Global Clean Energy Index (INDEXSP:SPGTCLED) includes 30 companies involved in energy production and technology. Solar is one area of the clean energy market that is of interest to those wishing to diversify away from fossil fuels. President Obama has been a keen advocate of wind and solar power with the introduction of new policies designed to make solar affordable for the average American. Whether Trump will continue with such an agenda, however, is up for debate given that based on some of his comments he appears to be a climate change skeptic.

      That said, and while still early days, we believe the key 30% Investment Tax Credit for solar energy that was extended until 2021 under the Obama Administration is likely to remain in place. The Clean Power Plant rule, however, that sets emission standards for the states and increases demand for clean energy, is unlikely to be upheld in our view.

      Today, renewables only account for a tiny proportion of U.S. energy consumption, and supplied just 0.6% of total electricity generation in 2015, according to U.S. Energy Information Administration estimates. With advancements in technology, energy storage and lower initial capital expenditure costs for solar energy combined with growing concerns about climate change, pollution and the impact to the environment that ‘dirty’ coal plants or disposal of nuclear bi-product create, Neuberger Berman undertook a ‘deep dive’ into the solar industry.

      During August 2015, the Neuberger Berman team hosted a series of ‘deep dive’ meetings to:

      • Debate the fundamentals of solar photovoltaics (“PV”)
      • Examine the implications for the broader energy markets
      • Draw on the knowledge of “expert” guest speakers including: Tony Seba (Disruption expert, Lecturer at Stanford University), Jeff Osborne (Solar PV expert and analyst with Cowen and Company), Michael Parker and Hugh Wynne (storage expert and utility analyst, respectively, from AllianceBernstein)
      • Leverage diverse and specialist opinions from portfolio managers and analysts focused on energy and autos (given the potential impact of electricity consumption driven by the electrification of autos)
      • Identify investment opportunities and views

      The results from the ‘deep dive’ series were reassuring from both an environmental and an investment perspective, and presented a number of select investment opportunities over the long term:

      1. Solar PV adoption is likely to continue at high growth rates, driven by expected cost declines in excess of 40% by 2020 and by financial innovation such as leasing models which effectively remove the need for high investments from households.
      2. Energy storage, the “holy grail” of the energy industry, could become a game changer relatively soon, as costs are expected to decline considerably over the next few years. This would in turn boost solar PV adoption, especially in warmer climates such as Brazil, Australia, Spain, and Japan.
      3. Distributed solar PV generation (rooftop) is not expected to displace the grid, but to grow “on the grid” in most developed markets.
      4. Solar off-grid is most likely to occur in developing countries with good solar resource and less developed infrastructure (e.g., India).
      5. The jury is still out on whether solar rooftop or utility-scale solar will prevail. The outcome partly depends on how the regulation (e.g.. “net metering”) changes and what strategies utility companies adopt to “deal” with solar. This may be different by region / country.
      6. Challenges ahead in the U.S. market as of December 2016: any change from the new Administration to the existing 30% Investment Tax Credit (not our base case), and changes to regulations at the Federal or State level especially with respect to “net metering” (i.e., selling electricity back to the utility provider).

      Investment Implications

      Global Equity Research Department views:

      • High conviction about the elevated growth rate for solar PV installations globally, but the industry is still young and undergoing lots of changes. As a result, stocks are often volatile and sentiment-driven.
      • Favors avoiding companies that are likely to be vulnerable to interest rate rises and changes in regulation.
      • Caution warranted on those companies that have set overly aggressive growth targets.
      • Preference for stocks that have both accelerated growth combined with a cost advantage driven by technology, allowing for margin expansion potential.

      Thought leadership and insights

      Neuberger Berman’s ESG and SRI activities are integrated across many platforms, as a result we regularly produce insights from many perspectives.

      Engagement and education

      We seek to share our expertise on ESG with investors, company management and the broader community. Similarly, we make it a priority to stay current on best-in-class ESG resources and initiatives. Examples of our engagement and education include the following:

      Governance
      In July 2015, recognizing the importance of thoughtful and strategic governance, Neuberger Berman joined the PRI collaborative engagement on the Director Nomination Process. Neuberger Berman also joined the Fixed Income collaborative engagement in March of 2015, which is in active dialogue with major rating agencies for incorporation and improved assessment of ESG criteria in credit ratings.

      Employee Education
      Neuberger Berman held an internal panel in July of 2015 on “Why Sustainable Investing Matters”—to help educate all employees on the importance of environmental, social and governance issues as they relate to investing and the commitment that the firm has made around this.

      Reporting
      Two senior Neuberger Berman research analysts recently joined Sustainability Accounting Standards Board Industry Working Groups to offer feedback on reporting standards under development in their sectors of expertise (2014-2015).

      Neuberger Berman authors white papers, blogs and newsletters on ESG topics including:

      • Carbon Footprint Analysis; Assessing carbon impact from a broad perspective can provide valuable investment insights (September 2015);
      • Energy, the Environment and The Investment Process (June 2014); and
      • Active Management: Sustainability – Value Creation or Values (May 2014).

      Media
      Our co-head of the Socially Responsive Investment (SRI) group was featured in a Wall Street Journal article, “Investors Follow Their Conscience” (July 2015).

      Internal Meetings
      In 2014-2015 Neuberger Berman portfolio managers and research teams hosted meetings with organizations such as Trucost, the Sustainability Accounting Standards Board and the Federal Energy Regulatory Commission—on topics such as Green Bonds and methane emissions regulations to stay current on ESG developments.

      Industry Events
      Neuberger Berman investment professionals and analysts attended external meetings with other PRI Signatories on topics such as “Fiduciary Duty in the 21st Century” (Oct 2015, at Morgan Stanley) and “Connecting the Dots: ESG and Valuation” (Oct 2014, at Bloomberg), and took part in informal ESG working groups to discuss ways to monitor progress in ESG integration.

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      This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory clients may hold positions of companies within sectors discussed. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events may differ significantly from those presented. Investing entails risks, including possible loss of principal. Diversification does not guarantee profit or protect against loss in declining markets. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

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