2012 Sustainability. Environment Social Finance Community Development Public Finance

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1 2012 Sustainability Environment Social Finance Community Development Public Finance

2 Morgan Stanley is committed to mobilizing the power of the capital markets to achieve sustainability for our clients, communities and stakeholders. We aim to harness not just financial capital, but also human capital, to provide innovative, scalable solutions that foster sustainable growth and opportunity. James P. Gorman Chairman and Chief Executive Officer This past year, we rearticulated our core values, distilling the essence of what matters most to Morgan Stanley our clients, shareholders, employees and communities. We ensure that these values are embedded in all that we do. From our leading clean energy and public finance bankers to our top-ranked financial advisors, concern for social, environmental and financial sustainability informs decisions and influences business activities. We support companies in mature and nascent industries alike, providing the expertise and capital needed for growth. In doing so, we shape vibrant, prosperous businesses and revitalize communities, giving them the tools to address tomorrow s challenges, as well as today s. The commitment of our 55,000 employees to sustainable practices is clear in their daily work with clients, their extraordinary volunteerism with diverse organizations, and the improvements they make in the firm s operations. This commitment and an accompanying drive for change enable us to deliver exceptional value to all of our stakeholders.

3 Sustainability at Morgan Stanley Morgan Stanley is committed to integrating sustainability into our core business activities. Our capital markets expertise and global reach enable us to make unique contributions to support sustainable business models that strengthen communities, provide economic opportunities and preserve environmental resources. As a firm, we hold ourselves to rigorous standards, managing and monitoring risk with robust policies, processes and training, embedding a commitment to integrity and sustainability throughout our organization. We also measure the environmental impact of our operations, setting ambitious goals to ensure that we, like our clients, continue to innovate and adopt sustainable practices. In 2012, we launched Investing with Impact, an investment platform designed to deliver financial products that offer positive environmental and social impact. Morgan Stanley s development of this platform is a significant step in our effort to meet clients desires for sustainable investment opportunities. We see this step as the first of many, intended to spur forward-thinking, enduring solutions to client needs and pressing community challenges. Morgan Stanley s sustainability strategy is led by the Global Sustainable Finance Group (GSF) and is guided by an advisory council of senior-level Morgan Stanley executives. Reporting to the firm s senior management and Board of Directors, GSF works with business units to develop sustainable business models and products that can achieve financial, social and environmental returns, strengthening the services that we provide our clients. 1

4 CHINA LONGYUAN POWER Morgan Stanley was the co-lead manager in Bloomberg New Energy Finance s top new energy deal for We provided $775 million of hybrid debt and equity financing for China Longyuan Power, Asia s largest wind power generation company. The firm acted as sole ratings advisor and joint bookrunner for Longyuan s $400 million perpetual bond issuance, as well as joint global coordinator for Longyuan s $375 million primary equity offering. Environment We seek to use our roles as intermediaries, investors and facilitators to promote the shift to a low-carbon economy. We strive to play a positive and powerful role in helping our clients and partners in the public, private and nonprofit communities identify and create capital markets solutions to environmental challenges. Our global clean energy team advises across the spectrum of renewable energy, next generation transportation and smart grid clients. In 2012, our clean technology investment banking team intermediated more than $6 billion through IPOs, advisory and other financing transactions. We also deploy capital directly in support of renewable energy projects, providing construction financing and helping clients raise funds through the capital markets to develop and construct solar and wind projects. These efforts earned Morgan Stanley a top-20 place in the Bloomberg Markets 2012 Green Banks ranking. Our community development activities also focus on the need to improve energy efficiency and reduce emissions in homes and communities. We work with partners who are developing affordable housing and social services for communities located near transit hubs. The $50 million San Francisco Bay Area Transit-Oriented Affordable Housing Fund, launched in 2011, continues to attract high-impact projects; deployment of that fund has been robust, and we expect it to be fully distributed in

5 $ 6Billion Morgan Stanley s clean technology investment banking team intermediated more than $6 billion through IPOs, advisory and other financing transactions

6 $ 800Million We have participated in more than $800 million in microfinance transactions since 2006

7 Social Finance Focusing on innovative capital markets solutions, Morgan Stanley s social finance activities aim to tackle poverty by improving access to basic goods and services. Since 2006, we have cumulatively participated in more than $800 million in microfinance transactions through direct financing and advisory services. Through these transactions, we facilitate the flow of capital between investors and the businesses that deliver services, generating financial and social returns. We also work with investors seeking to allocate capital to social finance products, demonstrating the sector s attractive investment opportunities and commercial value. In support of a strong domestic microfinance sector, Morgan Stanley continues to work with Accion East and Online (formerly ACCION USA), a leading provider of microcredit to small business owners. Our support in 2012 strengthened the organization s stretch loan guaranty program, providing business capital to entrepreneurs who had the financial capacity to take on a loan, but not the credit experience. Since its launch with Morgan Stanley support in 2010, the guaranty program has allowed Accion to provide over $550,000 in business loans to 65 entrepreneurs, creating or retaining jobs in low- to moderate-income communities. In response to Hurricane Sandy, our support allowed Accion to expedite loan requests from clients recovering from the effects of the hurricane. These funds provided working capital that was lost after the storm due to disrupted contracts and business operations, enabling owners to repair storefronts, replenish inventory and meet other immediate needs. UNDERBANKED MARKET STUDY An estimated 28 percent of U.S. households 68 million adults are underbanked. Morgan Stanley partnered with the Center for Financial Services Innovation and Core Innovation Capital to develop a research series on investment opportunities that improve access to products and services for underbanked U.S. consumers. The first report, the 2011 Underbanked Market Sizing Study, framed the depth and breadth of the underbanked marketplace. This research should help to attract entrepreneurs and investors to support the development of responsible, innovative products and services that meet the needs of underbanked communities. 5

8 HEALTHY FUTURES FUND Morgan Stanley partnered with the Kresge Foundation and Local Initiatives Support Corporation (LISC) to launch the Healthy Futures Fund to encourage the colocation of community health care facilities with affordable housing. Committed to improving health outcomes for low-income communities, this first-of-its-kind $100 million investment fund is designed to expand access to health care and affordable housing for low-income residents throughout the U.S. The fund will build 500 housing units with integrated health services, and eight health centers, to serve approximately 75,000 people. Community Development Morgan Stanley is committed to generating lasting social and economic benefits through urban and rural affordable housing preservation and creation, small business development, disaster relief and programs to strengthen communities. We work alongside public policy experts, nonprofit organizations and philanthropies to develop solutions to complex community problems. Recent initiatives include the $100 million Healthy Futures Fund that will link affordable housing and health care; Bay Area Transit-Oriented Affordable Housing Fund, a $50 million fund that links affordable housing to public transportation; and California FreshWorks fund, a $100 million public-private partnership loan fund that is boosting access to fresh food in California. Our initiatives are designed to produce measurable social outcomes, help preserve and protect the environment, and use profitable, sustainable business models that aim to ensure a continued flow of capital for community investment. We build relationships and partnerships that will endure, enabling us to improve the lives of low- and moderate-income individuals and families, benefitting our communities and our partners. 6

9 $ 7.8Billion We have committed more than $7.8 billion to community development initiatives since 2006

10 205 We led the negotiated sale of 205 public financings totaling nearly $23 billion

11 Public Finance Capital markets play a key role in the growth and operations of municipal, educational and cultural institutions. These public debt offerings help to pay for new highways, hospitals, schools, water and sewer systems, museums, mortgages for first-time homebuyers, student loans and environmental improvements. Many financings help state and local governments develop infrastructure, creating new jobs and supporting those that already exist. With governments and other organizational budgets stressed, finding efficient and creative funding is especially important to minimize the burden on taxpayers. Morgan Stanley s innovation and expertise in public finance have made us one of the top four national municipal underwriters. In 2012, we led the negotiated sale of 205 public financings totaling nearly $23 billion, bringing the total to more than $145 billion since We helped to strengthen the financial position of over 80 institutions of higher education and have raised money for 23 cultural and nonprofit institutions. These institutions have included the Lincoln Center for the Performing Arts, the Art Institute of Chicago, the Smithsonian Institution and the Whitney Museum of American Art. Nonprofit and government health care organizations have also benefited, with more than $23 billion raised in this area since As a result, these institutions and municipalities are stronger financially, and our communities are healthier and more vibrant. STANFORD HOSPITAL & CLINICS Morgan Stanley was senior manager on a $468 million bond financing for Stanford Hospital & Clinics, which is the primary teaching affiliate of Stanford University. The bonds were issued to fund the construction of the new Stanford Hospital, with a capacity of approximately 580 patient beds. The new hospital will support patient care, environmental sustainability and practitioner and staff productivity. Morgan Stanley s marketing effort resulted in fixed-rate pricing at some of the lowest rates ever for a health care borrower. 9

12 AWARDS AND RECOGNITION IN Best Companies for Working Mothers Working Mother (U.S.) Ranked in Top Ten Great Place to Work Institute (Japan) Top 50 Employers for Women The Times (U.K.) 50 Top Employers of College Grads Bloomberg Businessweek (U.S.) 100% on Corporate Equality Index Human Rights Campaign (U.S.) Our People Morgan Stanley s strength lies in the talents of our employees, their relationships with our clients and communities, and their commitment to the firm. Our goal is to attract and retain exceptional individuals with strong intellect, drive and integrity by helping them achieve their professional potential and offering them competitive rewards. Across the globe, in the 43 countries where we operate, we aim to hire a diverse workforce. By fostering diversity and valuing differing perspectives, we serve clients better and help employees fulfill their professional potential. Our competitive compensation plans reward performance, while promoting ownership and matching employee interests with both firm and shareholder goals. Through our development programs and networking groups, we foster employees career growth and strive to ensure exposure and inclusion across our organization. Finally, recognizing that employee satisfaction is vital to our success, we offer robust, location-specific family policies and wellness programs, to ensure a healthy, productive workforce. We know that the firm s culture shapes our activities and influences our success. We are committed to creating a culture in which our core values are embraced and rewarded: Putting clients first Leading with exceptional ideas Doing the right thing Giving back Employees recognize the significance of these values, and in our most recent global, firmwide employee survey, 81 percent said that they believe they are important to our firm s future success. 10

13 81Percent 81 percent of employees believe Morgan Stanley s values are important to the future success of the firm

14 22,500 Strategy Challenge has provided more than 22,500 hours of pro bono strategic advice to 49 nonprofits since 2009

15 Philanthropy Central to Morgan Stanley s culture is the belief that we should use our diverse talents and resources to solve critical problems, whether through our business activities or our community engagement. For more than 50 years, Morgan Stanley has supported the communities where we live and work through the Morgan Stanley Foundation, the Morgan Stanley International Foundation and our many volunteer activities. These efforts have included major initiatives, such as the Morgan Stanley Global Alliance for Children s Health, which continues to impact children s well-being around the world, and local, employee-led programs. Employees passion and commitment to serving their communities continue to be a driving force in the firm s charitable efforts. We encourage employees to contribute their time, money and expertise, and we support their generosity with grants, matched funding and recognition. To deepen that engagement, we launched our Year-Round Volunteer Program in Through skills-based opportunities and consistent partnerships with nonprofit organizations, we are strengthening relationships between the firm, employees and our charitable partners. Our signature pro bono initiative, Morgan Stanley Strategy Challenge, offers teams of high-performing employees an opportunity to give strategic advice to nonprofits with missions ranging from education to microfinance to social services. In 2012, we provided 15 organizations in three U.S. cities with guidance to tackle key issues. Since its inception, teams have provided 49 organizations with over 22,500 hours of pro bono service, worth an estimated $3.4 million, and created millions of dollars in impact HIGHLIGHTS More than 32,000 employees gave 430,000 hours of time and talent to philanthropic causes onations from Morgan Stanley and its employees totaled over $82 million Morgan Stanley was named one of America s top 10 most community-minded S&P 500 companies in The Civic 50 13

16 SUPPLIER DIVERSITY Morgan Stanley works with minority- and women-owned businesses. We understand that equal access and opportunity, along with diversity in our business processes, strengthen our firm. Through our Supplier iversity Program, we spent more than $203 million in 2012 with diverse direct and indirect suppliers in the Americas 4.5 percent of our overall supplier spending and a 24 percent increase over We intend to increase this spending to five percent or more of our total supplier spending within the next two years. Operations Through our operations how we manage our offices, support clients and interact with suppliers we are committed to reducing our environmental impact. We set ambitious targets for our carbon emissions and other environment-related measures. Having exceeded our 2013 carbon reduction goal of 15 percent from a 2006 baseline, we established the new goal of a further 15 percent improvement by 2017, from a reset 2012 baseline. When achieved, this will amount to a 37 percent reduction from 2006 on a per-square-foot basis. Reduced emissions have been achieved through a comprehensive retro-commissioning program and the guidance of external certifications such as Leadership in Energy and Environmental Design (LEED). In 2012 and early 2013, three buildings in our real estate portfolio achieved LEED certification, including our New York headquarters, which is certified LEED Gold; 21 offices around the world now have LEED certification. We take a multifaceted approach, improving energy and water efficiency, using resources effectively and establishing practices to ensure indoor environmental quality. The returns associated with these practices exceed the costs, demonstrating both the financial and environmental benefits of sustainability. Our policies reflect our desire to reduce waste and resource use when possible. Employee innovation has led to programs as varied as a move toward disposable-cup-free offices and the rapid adoption of paperless statements for clients. Morgan Stanley is an early signatory to the Carbon Disclosure Project (CDP) and is included in the CDP s 2012 S&P 500 Carbon Disclosure Leadership Index. 14

17 21Offices Morgan Stanley s offices are more efficient, with 21 certified to LEED standards, including our New York headquarters

18 Report Card 2012 ENVIRONMENTAL FINANCING INITIATIVES SOCIAL FINANCE OPERATIONS Intermediated more than $6.2 billion in securities in the cleantech sector Transactions receiving environmental due diligence: 476 Since 2006, participated in over $800 million of microfinance transactions Morgan Stanley Social Finance Transactions Reduced global office emissions 26% between 2006 and 2012 Total global office emissions (tco2e) COMMUNITY DEVELOPMENT Latin America Asia Morgan Stanley s investments funded the preservation and construction of more than 5,200 units of affordable housing, creating more than 9,200 jobs Our Housing Finance Group worked with HFAs across the U.S. to underwrite nearly $1.2 billion in municipal and state bonds U.S. Africa and Eastern Europe , , , , , , ,916 16

19 PUBLIC FINANCE Morgan Stanley led the negotiated sale of 205 financings valued at nearly $23 billion PHILANTHROPY Since 2009, our global hunger programs have provided 10 million meals and snacks to children and delivered 50 million servings of fruit and vegetables to children s food programs More than 32,000 employees volunteered 430,000 hours in 500 cities in 25 countries Morgan Stanley Foundation and Morgan Stanley International Foundation 2012 Giving by Category SUPPLIERS Spent $203 million with diverse Tier 1 and Tier 2 suppliers, a 24% increase over 2011 SUSTAINABILITY AWARDS Sustainability performance recognized by: C P S&P 500 Carbon isclosure Leadership Index ow ones Sustainability Index World and North America Indexes RobecoSAM Sustainability Leader Children s health Employee engagement Scholarships Disaster relief Ethisphere Institute Best-in-Class Code of Conduct 17

20 For more information: Morgan Stanley CS /13