34973 “Who Cares Wins”: One Year On A Review of the Integration of Environmental, Social and Governance Value Drivers in Asset Management, Financial Research and Investment Processes This report was commissioned by the IFC through its Sustainable Financial Markets Facility (SFMF), a multi-donor technical assistance facility established in 2002 to promote environmentally and socially responsible business practices in the financial sector in emerging markets. The SFMF is currently funded by IFC and the governments of Italy, Luxembourg, the Netherlands, Norway, and Switzerland. The conclusions and judgements herein should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. Nor should the conclusions and judgements herein be attributed to, and do not necessarily represent the views of the United Nations Global Compact. IFC and the World Bank and the United Nations Global Compact do not guarantee the accuracy of the data included in this publication and accept no responsibility whatsoever for the consequences of their use. Authors: David Gait and Cecilia Bjerborn, consultants, IFC. The authors acknowledge valuable input from Gavin Power, UN Global Compact, Ivo Knoepfel, OnValues Ltd. Project Management: Dan Siddy For further information contact dsiddy@ifc.org or cbjerborn@ifc.org 1. Introduction 1.1 The Global Compact This draft report has been prepared by the The United Nations Global Compact was launched in International Finance Corporation (IFC) in association 2000 with the aim of promoting responsible global with the Global Compact to briefly review progress corporate citizenship. To date, more than 2000 over the last year against the recommendations of the companies and other stakeholders, from over 80 Global Compact's June 2004 report, “Who Cares countries, have now joined the Global Compact's Wins: Connecting Financial Markets to a Changing network. For companies, the Global Compact is seen World”. The current report highlights areas of as a platform to manage both risks and opportunities. progress, identifies key trends and notes areas where the call for action has yet to be met. In January 2004, recognising the important role the financial sector needs to play to ensure the Global It is important to stress that this mapping is not Compact's objectives are met, a group of leading intended to be exhaustive. Rather, it simply seeks to financial institutions were invited to form a joint provide a snapshot of recent industry initiatives as they financial sector initiative under the leadership of the relate to the recommendations set out in the “Who Global Compact. The explicit aim of this initiative was Cares Wins” report. to develop guidelines and recommendations on how to integrate environmental, social and corporate The draft report has been prepared to coincide with governance (ESG) issues in asset management, the Zurich summit “Investing for Long-Term Value, 25 securities brokerage services and associated research Aug 2005, with the intention of providing an informal functions, and to suggest ways in which various starting point for discussion and brainstorming at this financial sectors, such as stock exchanges and pension important event. At this stage, the draft report is being funds, consider ESG issues. circulated to participants in the August 25th event only. It is currently envisaged that the report will be updated and finalized based on feedback from participants prior 1.2 Who Cares Wins to publication. After a period of consultation, a group of 18 financial institutions from 9 countries with combined assets under management of over US$6 trillion, published and publicly endorsed a report in June 2004, entitled 2 “Who Cares Wins: Connecting Financial Markets to a Analysts / Brokers Changing World.” The focus of the report is a Þ Incorporate ESG factors into Investors / Asset series of recommendations, targeting different Companies Þ Lead the way by mainstream research – “be managers creative and Þ Reward ESG financial sector actors, which taken together implementing ESG principles and thoughtful” research Þ Integrate ESG Improving reporting seek to address the central issue of and disclosure factors in research and investment processes integrating ESG value drivers into financial market research, analysis and Accountants Better Pension trustees Þ Facilitate Þ Consider in investment. These recommendations standardisation investment mandates and Educators markets selection of are summarized in Figure 1 below and Þ Facilitate ‘high- managers level’ thinking and + Governments/ have been endorsed by: training on ESG issues More Multilat. agencies Þ Proactively sustainable consider in PF investment societies ¡ ABN Amro ¡ Aviva Þ Consultants Combine ESG Regulators / stock ¡ research with exchanges / Banco do Brasil industry level governments Þ Implement ¡ Bank Sarasin research Þ Support demand NGOs reporting standards ¡ Þ Transfer and awareness e.g., listing BNP Paribas building Objective ESG particulars ¡ Calvert Group information on companies to the ¡ public and the China Minsheng Bank financial community ¡ CNP Assurances ¡ Credit Suisse Group Figure 1: Financial Sector Actors and Roles (as identified ¡ Deutsche Bank in the “Who Cares Wins” report) ¡ Goldman Sachs ¡ Henderson Global Investors ¡ HSBC ¡ IFC ¡ Innovest 1.3 International Finance Corporation ¡ ISIS Asset Management ¡ KLP Insurance IFC is one of several leading institutions whose CEOs ¡ Mitsui Sumitomo Insurance have endorsed the Who Cares Wins report. As the ¡ Morgan Stanley private sector arm of the World Bank Group, IFC's ¡ RCM ¡ UBS mission is to promote sustainable private sector ¡ Westpac investment in developing countries. IFC invests around ¡ World Bank Group US$5 billion a year in a wide range of private sector 3 projects and asset classes, to which it applies rigorous High Oil Prices social, environmental and corporate governance standards. A combination of strong energy demand driven by rapid economic growth in China and India, limited In December 2004, the UN Secretary-General and new supply and a heightened risk premium following IFC's Executive Vice President agreed that IFC would geo-political developments in the Middle East, all deepen its support to the Global Compact by contributed to a dramatic increase in oil prices over providing active long term collaboration on the the year, as seen in figure 1. One important Compact's work in the financial sector, especially work consequence has been the stimulation of investor related to Who Cares Wins follow-up and the interest in issues such as energy usage and levels of advancement of ESG issues in emerging markets. energy intensity amongst companies, as well as consideration of alternative “clean energy” sources and technologies. For example, high oil prices have led 2. “Who Care Wins”: Favourable Industry to a significant improvement in the competitive Tailwinds positioning of solar power and wind-dependent generation companies. At the same time, consumer Before reviewing specific developments undertaken by preferences have shifted towards more energy- financial institutions, it is instructive to reflect briefly on efficient products. The strong growth of small and the favourable industry backdrop of the past year. European Brent Crude Oil Spot Price Taken together, the following events have 65 proved instrumental in 60 US$ per barrel encouraging investors and 55 analysts to consider ESG 50 issues: 45 40 35 02/08/2004 02/11/2004 02/01/2005 02/02/2005 02/04/2005 02/05/2005 02/09/2004 02/10/2004 02/06/2005 02/12/2004 02/03/2005 02/07/2005 Figure 2: The rising price of Oil Source: Bloomberg 4 “hybrid” vehicle sales in the United States is in part Kyoto and G8 attributable to high gasoline prices at the pump. The eventual implementation of the Kyoto Treaty, on February 16th 2005, and the emphasis placed on environmental and social issues leading up to and ETS and High Carbon Prices during the G8 Gleneagles Summit on July 6-8th 2005, The launch of the EU Emissions Trading Scheme (ETS) have both helped to keep ESG issues at the forefront on 1st January 2005 provided a framework by which of investors' and analysts' minds over recent months. both analysts and investors can better quantify the direct economic costs of corporate emissions and evaluate companies' emissions reduction strategies. Increase in “Clean Technology” Investment While coverage of the scheme is restricted to Europe, Opportunities its impact has been felt globally, as many non- Over the year a steady stream of previously unlisted European firms also have operations in the region. “clean technology” companies migrated to regional The threefold rise in the price of carbon dioxide stock markets, offering many investors the first emissions since the launch of the ETS has added opportunity to gain portfolio exposure to new and further impetus to such analysis. emerging sustainability-related sectors and themes. Breach of Trust Several large financial Carbon Dioxide Year 2005 Emissions institutions faced allegations 30 of breach of trust. In particular, concerns over Euros per Tonne 25 perceived conflicts of interest 20 and the mis-selling of 15 products have led to positive 10 changes in industry practices 5 and increased the focus on 02/08/2004 02/11/2004 02/01/2005 02/02/2005 02/04/2005 02/05/2005 02/09/2004 02/10/2004 02/06/2005 02/12/2004 02/03/2005 02/07/2005 ethical conduct. Figure 3: The rising price of carbon dioxide emissions Source: Bloomberg 5 Increased Risk Appetite, Ageing Populations employees' skills, time and expertise where and Emerging Markets appropriate, as well as the healthy emphasis placed on Low interest rates helped drive a marked increase in learning from individual company experiences and the global appetite for risk. Amongst other mistakes, in order to improve the corporate sector's consequences, this led to significant new investment ability to respond to future emergencies. flows into emerging markets, reflected in investment returns of over 47% in the year to 31st July. At the same time, a growing number of pension funds have 3. Key Developments in the last year gone in search of higher returns from 'alternative' asset classes, including emerging markets, in order to meet The report's authors have attempted to prepare a the demographic challenges posed by ageing global 'map' of progress and key initiatives over the last populations and unfunded pension fund liabilities. 12 months in each part of the investment supply chain Given the increased risks associated with the asset identified in the Who Cares Wins report (see Figure class, this new interest in emerging markets has 1). The full results are tabulated in Appendix 1. It is prompted some investors to consider ESG-related important to stress that this mapping is not intended to strategies as an important risk-management tool. be exhaustive. Instead it simply seeks to provide a snapshot of recent industry initiatives as they relate to the recommendations set out in the “Who Cares New Social Issues Wins” report. As a result of globalisation, an increasing number of companies, through expanded supply chains and a A summary of key developments is presented in Table 1. greater reliance on contracting and sourcing in the Encouragingly, the past twelve months have witnessed a developing world, are confronting a range of new number of significant developments within the financial material social issues including labour conditions, sector, which taken together represent an important step HIV/AIDS, conflict and high levels of poverty and towards to the integration of ESG issues into analysis, inequality. asset management and securities brokerage. The Asian Tsunami Quality and Quantity The Asia Tsunami of December 2004 prompted many Most striking is the quality and quantity of new companies to develop new, or refine existing, initiatives and reports. In the majority of areas corporate responsibility programmes. Of note was identified by the “Who Cares Wins” report, good contribution not just of financial resources but also 6 Table I: A summary of key developments (excerpt from Appendix 1) Financial Sector Actor Major Developments in the Past Year Pension Fund Trustees ¡ Investor Network on Climate Change (INCR) conference, subsequent “Investor Call for Action” (May 05) and publication of “Investor Guide to Climate Risk.” (July 05) ¡ Enhanced Analytics Initiative launched (EAI) (Oct 04) ¡ Principles for Responsible Investment launched (PRI) (June 05) ¡ Increased investment in clean technology sector including US$1bn commitment from INCR Call to Action signatories ¡ US pension fund collaborative engagement - e.g. 15 US pension funds sent letters to 43 power sector companies requesting climate risk reports (July 05) Governments/ ¡ Le Fonds de Réserve pour les Retraites (FRR), a French Government pension reserve fund set up in 2003, Multilateral launched a new 600 million euros European Equity “Socially Responsible Investment” mandate (June 05) Agencies Consultants ¡ Mercer build SRI team Investors/Asset ¡ EAI Managers/ ¡ Conference Board's ESG Tool for Analysts Buy-Side Research ¡ World Economic Forum and AccountAbility published “Mainstreaming Responsible Investment” (Jan 05) ¡ Strong growth in “clean technology” private equity funds ¡ Third Round of Carbon Disclosure Project launched. 143 institutional investors with assets of $20trillion wrote to the 500 largest listed global companies (Feb 05) ¡ Generation Investment Management launched Investment Brokers/ ¡ EAI Sell-Side Research ¡ Conference Board's ESG Tool for Analysts ¡ Goldman Sachs, UBS and Citigroup all established new SRI teams ¡ New sell-side research commitment, often in collaboration with specialist NGOs/SRI firms. For example, Merrill Lynch initiated partnership with WRI to publish: “Energy Security and Climate Change: Investing in the Clean Car Revolution” (July 05) ¡ Prompted in part by Rainforest Action Network's Global Finance Campaign, several leading US banks launched firm-wide ESG policies, including JP Morgan, Bank of America, Wells Fargo and Citigroup. ¡ IFC designed emerging markets research competition Academic Institutions/ ¡ Mistra (Swedish Foundation for Strategic Environmental Research) launched three year major research Educators programme on “Behavioural Impediments to Sustainable Investment” and “Sustainable Development The New Role of Institutional Investors” (June 05) Regulators ¡ Few significant regulatory developments ¡ UK Government passed “Operating Financial Review”, requiring listed companies to disclose relevant ESG information (April 05) ¡ Germany passed regulation which mandates corporate pension funds to disclose any policies they have on social, environmental and ethical issues (July 05) Stock Exchanges ¡ London Stock Exchange set up Corporate Responsibility Exchange Companies ¡ Many examples of new ESG-related strategies, including launch of General Electric's “Ecomagination” (May 05) ¡ Global Compact network increased from around 1400 to over 2000 companies ¡ GRI reporting companies grew from 450 to over 700 ¡ Leading up to G8 summit, the heads of 23 global companies released a joint statement expressing strong support for action to mitigate climate change (June 05) NGOs ¡ WRI collaborated with Ceres, SAM Group and Merrill Lynch to produce a series of high quality, original research reports ¡ WWF and Allianz produced joint report “Climate Change and the Financial Sector: An Agenda for Change” Emerging Markets ¡ Countries such as Brazil, South Africa and Korea continued to be progressive on the development of ESG related investment ¡ Unlike the way "SRI" has developed in Europe and USA, in many emerging markets ESG is a mainstreaming action from the outset 7 progress has been made. Almost without exception, Collaboration emphasis has been placed on integrating and Collaboration was a dominant theme with the evolution embedding ESG issues at the heart of the investment of several large international initiatives such as PRI, EAI, process, rather than positioning them as optional add- CDP , GRI, INCR and IIGCC (the industry's penchant for ons to be considered only by those with a specialist acronyms remains undiminished!). In addition, on the SRI interest. research side there was a notable trend of partnership between traditional sell-side research firms, NGOs and specialist SRI firms. Examples included reports such as New Faces and Firms “Energy Security and Climate Change: Investing in the Until recently the consideration of ESG issues was Clean Car Revolution” (WRI and Merrill Lynch), “Climate largely restricted to specialist firms within the SRI Change and the Financial Sector: An Agenda for Action” industry. However, the last twelve months have (WWF and Allianz) and “Thoughts on SRI Research.” witnessed an important step-change in this dynamic, (Morgan Stanley and Oxford Analytica), as well as broad- as several pivotal financial institutions from outside the based research tie-ups between UBS and Innovest and traditional SRI space made new business West-LB and the SiRi Group. Whether this level of commitments to ESG integration, including Goldman collaboration will continue, once in-house capabilities to Sachs, UBS, Citigroup and Mercer. integrate ESG research are further developed within the traditional sell-side firms, remains to be seen. Climate as a Catalyst Collaboration is also at the forefront of the Although developments covered the spectrum of forthcoming "Investing for Long-Term Value" environmental, social and governance issues, climate conference (25 August 2005) in Zurich. Under the change proved to be a particularly powerful catalyst. auspices of the Global Compact, Swiss Government Most notable was the Investor Network on Climate and IFC, this is a follow-through event to the initial Risk (INCR) conference hosted by Ceres in May 2005 Global Compact meeting in 2004 which produced which gathered together an impressive collection of “Who Cares Wins”. This second conference seeks to leading US state, city, labour and religious pension bring together leading financial-sector experts from a funds, as well as several large European investors. The range of firms to take stock of initiatives, research and outcome was an “Investor Call for Action”, containing innovations. ten recommendations addressing climate change as well as a series of specific commitments from signatories. These are outlined in Appendix 2. 8 Box 1: The Enhanced Analytics Initiative (EAI) Innovative Responses The EAI was launched last October by a group of leading European investors with the stated aim of promoting Several new initiatives launched last year are better research on ESG issues from sell-side analysts by particularly notable for the high level of innovation and explicitly requesting and rewarding such research. Each originality they bring to tackling perceived gaps and member of the Initiative committed to allocate 5% of their brokerage commission (currently around US$5m for the market failures. These include: second half of 2005) to those research houses, identified by a six monthly evaluation, as being most effective at ¡ The Enhanced Analytics Initiative (box 1) analysing extra-financial issues and intangibles. ¡ The Principles of Responsible Investment Initiative (box 2) The second six monthly evaluation in June 2005 examined ¡ IFC Emerging Markets Sustainability Research Grant 84 reports from 23 research providers and singled out four institutions (Bernstein Research, CM-CIC Securities, Competition (box 3) Dresdner Kleinwort Wasserstein and UBS Investment ¡ Conference Board's Framework to Factor ESG Research) for the research they produced between Criteria into Investment Analysis (box 4) November 2004 and April 2005. Following the report EAI Chairman Philippe Lespinard concluded: “Progress has certainly been made since the last evaluation in January 2005, but the outcome that we really require is consistently good research across a range of sectors and issues that is directly applicable at company level. This is still some way off but we are confident that the increasing membership of the EAI and the increased incentives that this entails will help research houses to deliver the breakthrough that long-term asset owners and their fund managers require.” Other findings so far include a bias towards certain sectors such as utilities, and issues such as climate change, while the majority of reports remain equity rather credit focused. Since the launch, two new institutions (Hermes Pensions Management and SPF Beheer) have joined, taking the number of full members to nine. 9 Box 4: “Expanding the Investment Frontier”: Box 2: The Principles for Responsible A framework to factor ESG criteria into Investment Initiative (PRI) investment analysis Launched by the Secretary-General, and co-sponsored by As a direct outcome of last year's “Who Cares Wins” UNEP-FI and The Global Compact, the PRI is currently project, The Conference Board convened a working developing global ESG guidelines for public pension funds. group of “Who Cares Wins” endorsers to develop industry A core group of international institutional investors is tools to assist the analysis of ESG issues. currently developing the principles. The UN is playing a convening and facilitating role, understanding that the final ¡ An analysis was conducted of 10 major business principles scheduled for release in March 2006 will be sectors and the 10 most significant ESG factors for each “owned” by the investors themselves. Endorsing funds will sector were compiled. include PRI and the concept of ESG in their own investment mandates and processes. ¡ A Discounted Cash Flow (DCF) modelling procedure was developed as a Framework and documented to illustrate how these factors could be systematically evaluated. Box 3: IFC Emerging Markets Sustainability Research Grant Competition ¡ An application of the conceptual approach was applied to the energy sector to illustrate how it works. As part of its work on sustainable investment in emerging markets, the IFC developed a competition making available ¡ “Scaled back” approaches to applying the Framework were suggested to address the potential complexity of up to $500,000 in grant(s) to analysts, rating companies, the model Framework and illustrate how it can be and other providers who will increase the availability and flexibly applied depending on different analysts' quality of sustainability-related research on emerging preferences and interests. markets listed companies. As a result, the Group has developed - for tentative The project is premised on the belief that while more release in August/September 2005 by The Conference investors would like access to good quality, affordable Board -- an analysis of emerging ESG factors in ten research, there is currently a lack of infrastructure in place industries, in addition to a tool linking specific ESG issues to to meet this demand. This has created one of the major company value drivers. short-term market barriers to increased sustainable investment in emerging markets. IFC believes that this barrier can be overcome, by building the professional capacity for research and analysis in emerging markets and combining local expertise with international best practice. The grant competition will be open to a wide range of organizations, from mainstream broker dealers to more specialized firms. A panel of internal and external experts will evaluate submissions based on the quality of the research and their coverage of a range of environmental, social, and governance issues affecting long-term shareholder value of emerging market companies. Detailed information for applicants will be posted on the IFC website in October 2005: www.ifc.org 10 4. Key Gaps and Issues for Future 4.2 Issues for Future Consideration Consideration Follow-Through 4.1 Key Gaps Generally the level of follow-through and momentum The mapping in Appendix 1 also highlights some of the for existing initiatives appears to be good. However, it areas where progress has been slow, with the key was not uncommon to come across websites from gaps summarised in Table 2. previous initiatives which had not been updated for at Table 2: A summary of key gaps (excerpt from Appendix 1) Financial Sector Actor Key Gaps Pension Fund Trustees ¡ Pension fund trustee consideration of ESG issues in formulation of mandates and manager selection still not widespread ¡ EAI requires broadened and deepened membership to fulfil potential Governments/Multilateral ¡ Opportunities for further progress by government and multilateral pension funds to Agencies integrate sustainable investment principles taking into account their fiduciary duty. Consultants and ¡ Greater technical research still required from consultants and academics on the implications Academic Institutions of ESG integration in different asset classes and with different styles, for both returns and alternative measures of risk Investors/ Asset Managers/ ¡ Indications that the industry as a whole is still getting even more short term. Specific Buy-Side Research initiatives needs to ensure this short-term industry takes account of ESG issues ¡ More emphasis needs to be placed on the time horizon of incentivisation programmes for investment professionals ¡ EAI requires broadened and deepened membership to fulfill potential ¡ Fund managers slow to develop high quality long-term investment products Investment Brokers/ ¡ Expansion of geographical industry coverage of ESG research required Sell-Side Research Regulators ¡ Regulators have not taken an active role in some cases their interventions have made it more difficult, rather than easier, for investors to focus on long-term horizons and ESG integration (e.g. accounting and reporting rules forcing pension funds to report on a quarterly basis) Stock Exchanges ¡ Follow-through required after promising initial dialogue. Focus on practical measures that also make business sense for the exchanges Companies ¡ Better identification and communication of key strategic ESG challenges and value drivers ¡ ESG reporting could be more investor friendly Emerging Markets ¡ Most traditional emerging markets research still too short-term, with insufficient attention paid to ESG issues ¡ Broaden geographical research and sales focus of SRI teams within investment banks 11 least twelve months. Given the exciting positioning of extremely inter-dependent. As a result there is a new initiatives such as EAI and PRI, thought should be danger that different actors sometimes adopt a wait- given to ensuring they remain fresh and dynamic as and-react approach to product development, rather they evolve over time. There is scope to broaden than taking the lead. The dearth of innovative long- awareness of these initiatives beyond direct term products is an example of such a stalemate. In participants. Likewise, it would be interesting to gain a order to encourage the development of leadership better understanding of the end-usage of new reports products, it is important that financial institutions are and toolkits, if only to refine future publications to able to adopt their own long-term business ensure maximum impact. Where, when and by development plans. whom are they being read? The Line of Greatest Resistance In the Shadow of a Green Bubble? Further work is still required to convince pension fund In at least some areas, ESG-related investment has trustees, regulators and investors that the integration achieved a fashionable status in recent months. For of ESG issues is about creating value rather than example, in a trend mildly reminiscent of the internet reducing returns. As a recent consultant survey notes: era, it has been possible for a number of conceptual “clean technology” companies, lacking either tangible “For many trustees, socially responsible investment still revenues or assets, to gain easy access to investors' conjures up visions of negatively screened funds with capital. Whilst attractive returns have helped stimulate an 'agenda' to pursue, a view being reflected in the investor interest, there is a danger that this interest comparatively small amount of assets under could rise and fall along with the returns, unless the management.” underlying spirit of ESG integration is properly embedded. It is important to ensure that the current vogue for clean technology investment does not Investment Time Horizons overshadow consideration of other environmental, The continued growth in hedge fund assets reinforces social and governance aspects. the specific challenge of aligning the integration of ESG issues with the short investment time-horizon of this asset class. More work is required to understand how Leadership on Product-Development such integration is best achieved. For example, the The relationship between investment banks, asset practice of stock lending in its present format, managers, consultants and pension fund trustees is whereby long-term investors transfer ownership rights 12 of their shares to hedge funds in exchange for a fee, that this changes sooner rather than later. Pension has potential negative implications on corporate funds have an important role to play in demanding governance and the concept of shareholder greater consideration of ESG issues from existing responsibility. Further consideration of these issues emerging markets fund managers. Meanwhile, most may identify ways in which such effects can be investment in the asset class is still restricted to a small mitigated or removed. number of rapidly growing countries, and there is significant scope for private equity investors (particularly those with an ESG focus) to help catalyse Fixing the Investment Value Chain investor interest in new 'frontier markets'. A greater focus is still required to address key structural issues within the core investment process. Examples include the short-term focus of incentivisation and reward The new search for commodities structures for asset managers, analysts and brokers, the Rising prices of oil and other commodity prices have inflexibility of the current commission allocation process created new challenges for investors, as companies and the over-emphasis on risk defined primarily in step up exploration and production activities in relation to index weightings. Meanwhile the potential locations posing significant environmental and human conflict of interest between asset managers and rights challenges. Investors must work hard to ensure investment banks has yet to be fully addressed, their companies are not tempted to take short-cuts particularly in light of the significant growth in proprietary that boost short-term profits at the expense of long- trading desks and prime broking. term sustainability. Quality of Emerging Markets Investment An Exceptional Year? While it is too early to judge whether recent liquidity- The progress made last year in tackling the issues driven flows to emerging markets will ultimately prove raised in the “Who Cares Wins” report is extremely to be a blessing or a curse, much will depend on the encouraging. Placed in an historical context the underlying quality of these flows. Addressing the developments were in several ways exceptional, not present gap in the research infrastructure is one step least for the new broader commitment from leading towards improving this quality, but further advances financial institutions and the level of innovation and are required in other areas. Despite some progress, originality displayed by a series of new initiatives. only a minority of emerging markets investors Although maintaining such momentum will be difficult, currently seek to integrate ESG issues into their it is an achievable (and necessary) goal, particularly in investment decisions. Given the specific ESG light of the healthy roots put down by many financial challenges of many emerging markets, it is imperative sector institutions over the past twelve months. 13 Appendix 1: International Mapping of Developments since July 2004 Financial Market WCW 2004 Areas of Progress and Examples Outstanding Issues Actor Recommendations Pension Fund Consider ESG issues Mandates/ Manager Selection ESG consideration in Trustees in formulation of mandates/ manager mandates/ selection • Modest progress on new mandates and manager selection still not of managers selection. Large pension funds continued to lead widespread the way, including ABP, USS, PGGM, CalPERS and CalSTRS. Guidelines and Training • The Carbon Trust, Mercers and the Institutional Investor Group on Climate Change (IIGCC) report: “A Climate for Change – A Trustee’s Guide to Understanding and Addressing Climate Risk.”1 • EUROSIF/ UKSIF report: “Transparency Guidelines for Developing ESG Issues within Institutional Investment.” (ongoing)2 • EUROSIF report: Pension Fund Trustee Toolkit (Dec 04)3 • UKSIF Just Pensions toolkit: “Responsible Investment Trustee Toolkit” (April 05)4 • UKSIF Just Pensions developed five new sector reports for trustees on ESG issues, taking total number to nine. Topics include: food, tobacco, retail and construction industries5 (July 04 – June 05) Collaborative Initiatives US and European Pension Funds played important roles in both the launch and development of various collaborative initiatives including: • INCR conference and subsequent “Investor Call for Action” (May 05) and publication of “Investor Guide to Climate Risk6 (July 05) • Several examples of US pension funds collaborating on ESG engagement with companies and industries. For example, 15 US pension fund investors sent letters to 43 of the country’s 50 largest investor-owned greenhouse gas emitters in power sector, requesting climate risk reports. (July 05). In another example, four of Wal-Mart’s largest institutional shareholders from the US and Europe wrote an open letter to Roland Hernandez, Chairman of Wal-Mart’s audit committee, expressing “serious concerns about the reports of legal and a regulatory non- compliance at Wal-Mart” (June 05) • Enhanced Analytics Initiative (EAI)7 (launched Oct 04) • Pension Principles for Responsible Investment Initiative (PRI)8 (June 05) • Institutional Investors Group on Climate Change (IIGCC) and the Climate Group announced plans for a joint venture to generate an independent but co-ordinated international response to climate change from the international institutional investment community.9 14 • Evolution of single issue initiatives including The Broaden consideration Pharmaceutical Shareowners Group10 and of long-term mandates PharmaFutures11 Clean Technology Investments • INCR Call for Action included commitment from signatories to employ $1bn in new clean technology asset class (May 05) • CalPERS made first $15m investment of new Environmental Technology Program, which aims to invest $200m in firms providing environmental technology solutions (May 2005)12 Long-Term Investment Lengthen mandate • Small but increasing interest in long-term Re-examine stock time horizon mandates, partly driven by consultant interest, lending practices in light most notably from Watson Wyatt.13 of potential negative consequences on Emerging Markets ESG consideration • Brazil – pension fund association ABRAPP14 initiated process to develop principles for responsible investment (Nov 04) • Peru – state pension funds invest in local microfinance projects • Chile – signs of interest in investing in ‘globally responsible’ investment funds • Future stages of PRI to involve active engagement with emerging market pension fund trustees. Government/ Investment of Several positive examples of Government pension funds Concerns remain over Multilateral pension funds publicly embracing ESG integration, including: fiduciary impact of ESG Agencies according to mandates sustainable • Le Fonds de Réserve pour les Retraites (FRR), a development French Government pension reserve fund set up principles in 2003 to meet the expected shortfall from the existing Pay-As-You-Go state pension scheme, launched a new 600 million euros European Equity “Socially Responsible Investment” mandate to be allocated to up to 6 managers offering different SRI strategies.(June 04) Meanwhile, existing mainstream managers of the Fund are requested to fully incorporate the 10 Global Compact principles into their analysis and to implement an active proxy voting policy based on a set of publicly-disclosed guidelines.15 • Australia’s VicSuper Fund builds on its commitment to develop a “Sustainable Super Fund” with publication of their first Sustainability Report “What in the world has sustainability got to do with superannuation?” compiled in accordance with GRI Principles. (Oct 04) The New Zealand Superannuation Fund, initially launched in 2003, continued to allocate new mandates with consideration to ESG issues.16 • The Norwegian Government Petroleum Fund adopted new “Ethical Guidelines”17 (Dec 04) UN joint staff pension fund agreed to incorporate ESG factors into investment process Environment Agency Active Pension Fund placed its £1bn pension scheme out for a series of tenders, inviting asset managers to propose investment strategies that would specifically integrate the environmental performance, both past and future, into their investment strategies (2004). 15 Emerging Markets • IFC developing proposals for creation of new funds for long term, ESG-oriented investment in emerging market listed equities • EBRD assessing similar opportunities in Central & Eastern Europe • Increasing attention from the Chinese government to the significance of ESG factors in future on-shore and off-shore listing of Chinese private and state owned enterprises, and has begun to lay down a proactive strategy to manage these risks/opportunities. • Asian governments have started addressing pension management issues to increase transparency and independence for outside managers. Consultants Consider ESG issues • Some evidence of new commitment to ESG Scope for greater in formulation of integration by consultants. Of note, Mercer proactive leadership on mandates and increased commitment to ESG analysis with ESG integration, rather selection of managers development of dedicated SRI team, while than being reactive to Watson Wyatt continued development of long- client demand Contribute to term mandates. industry ESG • UKSIF publishes “Investing Responsibly: A Broaden appreciation research and share Technical Guide for Financial Advisors”18 (June 05) of value creation with financial market • A Mercers’ SRI investor survey found majority of proposition within actors 195 managers questioned believed most SRI issues wider consultant would be integrated into mainstream within 10 industry years.19 More technical Emerging Markets research required on implications for returns • Efforts to integrate international equities as an asset and alternative class into Asian pension funds can be expected to measures of risk for raise issues touching on ESG analysis. The growing different asset classes interest in new Asian asset classes such as real and different estate, infrastructure, and private equity will offer investment styles - similar challenges. Governance risks could including growth/value, dominate the picture initially. contrarian/ momentum, quantitative/ qualitative, small cap/ large cap and short-term/long- term Investors/ Asset Request/ Reward • EAI provides innovative link between request and Broaden and deepen Managers/ Buy- ESG research reward EAI membership Side Research • Small but growing allocation of commissions participation beyond 9 Integrate ESG factors specifically for SRI research in Europe – 2005 full members into research/ 6.25% of total broker commission devoted to Investment processes SRI, up from 4.26% in 2004 and 1.17% in Re-examine bespoke 2003.20 research payment • Greater use by asset managers of ESG research methods including from independent specialists such as Innovest and redirected CoreRatings commissions and • World Economic Forum and AccountAbility unbundling published “Mainstreaming Responsible Investment”, a report offering similar recommendations to the “Who Cares Wins” report.21 (Jan 05) 16 • Conference Board’s ESG sector analysis and tool development stemming from “Who Cares Wins” • Generation Investment Management launched with high-profile emphasis on long-term investment and integrated analysis of sustainability issues22 (Nov 04) • Innovest Strategic Value Advisors develop a positive screening tool based entirely on The Global Compact. Encourage • Strong growth in “clean technology” private equity Some companies companies to funds frustrated by lack of produce ESG • US social research analysts (SIRAN) at 18 firms, feedback by investors information representing over US$230bn in assets under on ESG strategies and management, issued a collective statement calling communication for companies to produce annual sustainability reports based on GRI guidelines.23 (Oct 04) • Third round of Carbon Disclosure Project launched. 143 institutional investors with assets of $20 trillion wrote to the 500 largest listed global companies, to request disclosure of “investment- relevant information concerning their greenhouse gas emissions.”24 (Feb 05) • Launch of Global Reporting Initiative “G3” included formation of Investors Consultation Group to consider recommendations for Develop/ improving the usefulness of GRI reports for Communicate proxy financial analysts and investors (June 05) voting strategies on • Fall in US shareholder resolutions in 2005 season ESG issues – around 570 shareholder proposals to date, down from 708 in 2004 and 698 in 2003. To Lengthen time date 85 proposals have won majority support in horizon 2005, compared to 138 in 2004 and 172 in 2003.25 Interpretation could be positive or Greater product negative. innovation required to • “Review of the Impediments to voting UK shares: meet long-term progress one year on”26 by Paul Myners to The horizons Shareholder Voting Working Group highlighted progress on electronic voting which was regarded as one of the biggest barriers to proxy voting. By the end of 2004 88 of the FTSE 100 companies facilitated CREST’s electronic voting service, compared with 47 the previous year. (March 05) • EUROSIF piloted transparency guidelines for engagement and voting in institutional investment27 (Oct 04) Emerging Markets Stronger links required between ESG-aware • Countries such as Brazil, South Africa and Korea private equity and listed continued to be progressive on the development equity investors, of ESG related investment. particularly in frontier • Brazil: FGV-SP and the IFC hosted a two day emerging markets conference on Sustainable Finance in Emerging Markets in Sao Paulo (Nov 04). • South Africa: Old Mutual Asset Management (OMAM), Unity Corporation and Community Growth Funds convened an SRI conference in May 2005 to generate proposals for the development of "SRI" in the South African market. • It should be noted that integration of ESG in many emerging markets -unlike the way "SRI" has developed in Europe and the U.S. -to a greater extent is a mainstreaming action from the outset, both for financial institutions, companies and their supply chains. Issues of HIV/AIDS, corruption and 17 transparency, are seen as material especially in the extractive but also in the financial sectors. Investment Incorporate ESG • EAI Integration of ESG still Brokers/ Sell- factors into • Conference Board’s ESG sector analysis and tool primarily limited to Side Research mainstream research development stemming from “Who Cares Wins” traditional sectors and thematic research. New Sell-Side ESG Research Commitment, including: More scope to embed • Goldman Sachs, UBS and Citigroup established into core stock analysis. new SRI teams • UBS hired Innovest to provide research to facilitate integration of ESG into their mainstream analysis Widen sector New Sell-Side ESG Research Reports, including: Link ESG information, coverage from • Citigroup “Sustainable Investment Themes: A such as GRI data, into traditional sensitive guide to the environmental and social factors traditional research sectors affecting each industry sector” and “Crossing the platforms River…and interpreting sustainable development for financial markets” (both July 05) • Morgan Stanley “Thoughts on SRI Research”28 (June 2005) in conjunction with Oxford Analytica. • Merrill Lynch initiated collaboration with WRI to publish “Energy Security and Climate Change: Investing in the Clean Car Revolution” (July 05) • UBS now produces an “SRI Monthly: Trends and Changes” report US Financial Firms embrace ESG at corporate level • Prompted in part by Rainforest Action Network’s Global Finance Campaign, several leading US banks launched firm-wide ESG policies, including JP Morgan, Bank of America, Wells Fargo and Citigroup. 29 Emerging Markets • IFC prepares US$0.5M million research Broaden geographical competition to catalyse ESG emerging markets research and sales research (launch in Autumn 2005)30 focus of SRI teams • ASRIA commenced ESG briefings for investors within investment and analysts. Topics so far include the banks environmental, health and safety performance of Most traditional companies and “ISO14001, what do investors emerging markets need to know?”31 This will be followed by research still too short- research to examine the ESG risks for the main term, with insufficient listed sectors in Asian markets. attention paid to ESG • ASRIA teamed up with Bank Sarasin to publish “ issues ‘Made in China’ – Is this a Sustainable Label?”32 (Sep 04) • CLSA continued to stand out for corporate governance and other ESG-related research in Asia. Publications included: ¾ “Corporate Governance in Asia: Spreading the word –Changing Rules in Asia” (Sep 04) – tracks corporate governance progress in 450 regional companies ¾ “Captains of Industry: A survey of corporate culture in Asia”, including research on executive and director compensation, human resource management and community relations. 18 ¾ CLSA U Education syllabus for investors included reports and expert presentations on biofuels, fuel cells, the end of oil and carbon management • Integration of ESG issues in some Brazilian sell- side research (ABN AMRO Banco Real) • Innovest increased coverage of emerging markets companies • Innovest and Rexiter Capital Management launched first Emerging Markets SRI Strategy • UBS’s SRI Monthly has a strong Asian and Emerging Markets focus. Topics in the August report included an analysis of the impact of EU trade reforms on South African sugar companies, the development of the Chinese pharmaceutical industry, the biodiesel potential of Malaysian plantation companies and Asian water treatment opportunities. • APIMEC (Brazil) and IFC started ESG training program for equity analysts Academic Support analysts with • Mistra (Swedish Foundation for Strategic Further academic Institutions/ high-level research Environmental Research) commenced new three research required on: Educators year major research programme, allocating (a) link between SEK21million to research “Behavioural successful ESG Impediments to Sustainable Investment” management and value (Göteborg University) and SEK12m to research creation “Sustainable Development – The New Role of (b) relationship Institutional Investors”.33 (June 05) between ESG • University of California Berkeley’s Center for integration and Responsible Business addressed ESG issues portfolio risk/return through annual social metrics conference profiles for different asset classes and Emerging Markets investor styles • Brazil: FGV-SP (Sao Paulo business school) (c) ESG integration and assisting Bovespa to develop sustainability index behavioural finance and providing sustainable finance training across the national financial sector. Greater links required between consultants and academic institutions to improve dissemination of academic research within the financial community Regulators Shape legal • UK Government brought into law the “Operating Regulators have not frameworks Financial Review”, which requires listed companies taken an active role in to disclose relevant ESG information.34 (April 2005) the field – in some Require minimum Too early to judge impact cases their degree of disclosure/ • Germany passed regulation which mandates interventions have accountability from corporate pension funds to disclose any policies made it more difficult, companies they have on social, environmental and ethical rather than easier, for issues (July 05) investors to focus on • Support for market-based solutions with companies long-term horizons and themselves calling for stricter (clearer) market- ESG integration (e.g. based regulations. For example, leading up to the accounting and G8 Summit, the heads of twenty-three global reporting rules forcing companies released a statement on June 9th 2005 pension funds to report expressing strong support for action to mitigate on a quarterly basis) climate change. It included a call upon governments The June 9th corporate to establish ‘’clear, transparent, and consistent price statement highlights the signals’’ through creation of a long-term policy 19 framework that includes all major emitters of need for technology greenhouse gases35 incentive programs that use performance- Emerging Markets based standards to accelerate • Significant upgrades in corporate law and listing commercialization of rules in recent years in Asia, the regulators have low carbon now begun to focus on tougher enforcement. technologies. It also More timely disclosure of related party transactions calls for a ‘’new has been a particular focus in Hong Kong and partnership’’ between China. the G8 countries and • In China, regulators have worked to resolve issues China, India, Brazil, with non-tradable shares, typically held by South Africa, and government entities to further develop the Mexico to facilitate domestic stock market. private investment in • The Malaysian government’s investment arm has low carbon endorsed the use of key performance indicators infrastructure. (KPIs) to enhance accountability. Stock Exchanges Include ESG criteria • The Global Compact, IFC and World Federation of Follow-through in listing particulars Exchanges discussed potential collaboration on required after +/or raise awareness areas such as support for emerging market promising initial of ESG issues companies on investor relations, solutions for dialogue information and disclosure for local exchanges. • Four stock exchanges joined The Global Compact: Euronext, Bovespa, Istanbul and Jakarta • London Stock Exchange set up corporate responsibility exchange to facilitate investor relations/ alleviate questionnaire fatigue36 Emerging Markets • Bovespa has developed a Sustainability Index which will be launched in Dec 2005 • Bovespa, Istanbul and Jakarta stock exchanges join Global Compact Companies Take leadership role • Many positive examples of companies embracing Better identification with ESG strategy ESG strategies. Most notable was the launch of and communication of implementation General Electric’s “Ecomagination”, targeting key strategic ESG revenues of $20bn from clean technologies by challenges and value 2010.37 (May 05). Elsewhere, 10 leading US drivers required companies announced greenhouse gas reduction commitments as part of the US Environmental Protection Agency’s Climate Leaders project.38 (May 05) • Global Compact companies increased from 1400 to over 2000. During the period policy was announced requiring participants to issue annual communication on ESG implementation • Proliferation of company and sector codes of conduct, including The Common Code for the Coffee Community39 (Sep 04) and The Electronics Industry Code of Conduct (Oct 04)40 Improving reporting • Number of companies producing GRI reports CSR reports often not and disclosure increased from 450 to over 700. in investor friendly • KPMG found 52% of global 250 firms issue format separate corporate responsibility reports, compared to 45% in 2002. The number of reports with an assurance statement increased marginally to 30% for global 250 companies from 29% in 2002.41 According to SIRAN, 58 of S&P 100 20 companies now present ESG information on their websites and 39 issue CSR reports, 24 of which are based on GRI.42 (July 05) • Launch of “One-Report” by SRI World Group consolidates data requests within GRI framework to facilitate corporate responses to ESG requests from investors and analysts43 Emerging Markets • Participation in global SRI indices and expansion of Regulated companies initiatives such as the Carbon Disclosure Project and those with a has triggered improved disclosure by a select multinational business group of companies. Sustainability reporting lead the way. But emerging in Korea, Hong Kong, and Singapore has widespread ESG been often encouraged by award schemes. reporting still to be • Eleven companies in Brazil (25 in Latin America) adopted. published reports based on the GRI guidelines in There is room for the past year initiatives such as the • 4 Brazilian companies was included in the Dow Extractive Industries Jones Sustainability Index Transparency Initiative • Natura, a sustainability leader in Brazil, had a very (EITI) and others to be successful IPO in 2004 developed and replicated across manufacturing and public sectors to help the mainstreaming of ESG. Accounting/ Establish consistent • ISO established Working Group on Social Further work needed rating agencies standards and Responsibility, to begin work on launch of a Social to provide investors and index frameworks Responsibility ISO 26000 standard, targeting with independent, providers publication in 2008.44 (Mar 05) comparable, • EUROSIF – voluntary transparency guidelines quantitative data on introduced, aimed at improving quality of reporting companies’ to private investors and fund managers.45 environmental • Several new SRI/ESG indices launched, including performance, FTSE4Good Japan, AuSSI (SAM’s Australian SRI presented in both Index) and KLD Select Social Index, a US-based quantity and financial index weighted not by market capitalisation but on terms (to facilitate the the basis of social and environmental performance incorporation of • Tel-Aviv Stock Exchange launched the Maala environmental factors Socially Responsible Investing (SRI) Index.46 (Feb into investment 05) decision-making) • Trucost investigated environmental disclosure levels in the annual reports and accounts of FTSE All- share companies.47 Emerging Markets • Launch of CBC Globally Responsible Investment Index with optimized weighting for emerging market stocks • Reputex (Australia) planning expansion into China and specialized CSR/Governance rating product for the Chinese market 21 Innovative research produced, often in conjunction with NGOs Provide objective financial institutions. World Resources Institute (WRI), information on an independent US-based non-profit organisation, stood companies to public/ out for its original research contribution, including: financial community • Framing Climate Change Risk in Portfolio Management (joint report with Ceres) • Questions and Answers for Investors on Climate Risk (with Ceres) • Transparency Issues with ACEA: Are Investors Driving Blindly (with SAM Group) • Energy Security and Climate Change: Investing in the Clean Car Revolution (with Merrill Lynch).48 • WWF and Allianz produced joint report “Climate Change and the Financial Sector: An Agenda for Action”49 • Web-based Business and Human Rights Resource Centre (Jan 05) launched officially. The Centre provides shared research on 2000 companies for campaigners and investors in a user-friendly format50 Emerging Markets • India: Centre for Social Markets (CSM) hosted local awareness raising conference on SRI 22 Appendix 2: Investors’ Network on Climate Risk (Excerpt from “A New Call of Action: Managing Climate Risk and Capturing the Opportunities” May 10th, 2005”51) Institutional investors 6. Call to Action: Improve mutual fund engagement in addressing climate risk. 1. Call to Action: Invest capital, individually or Our Commitment: INCR will publish an annual collectively, in companies developing and deploying scorecard showcasing how mutual funds vote on clean technologies, which we believe will enhance climate change shareholder resolutions. and sustain the long-term viability of corporate assets and shareholder value. Companies Our Commitment: Our collective goal in the next year is to seek to deploy $1 billion of capital to achieve 7. Call to Action: All publicly-held companies in the attractive investment returns over the long term and auto, electric power, and oil and gas sectors should help catalyze adoption of clean technology in the follow the lead of some companies and report within broader marketplace, while at the same time adhering a year how likely scenarios for climate change, future to the fiduciary standards that govern our overall greenhouse gas limits, and dwindling access to actions. inexpensive energy will affect their businesses and competitiveness, and to identify steps they are taking 2. Call to Action: Support for and success of to reduce those financial impacts and seize new appropriate shareholder resolutions and company emerging market opportunities. engagement to improve corporate disclosure and governance on climate risk. Our Commitment: We will engage with these companies to consider and address climate risk. Our Commitment: We will develop through the Investor Network on Climate Risk (INCR) a model climate risk 8. Call to Action: Renew dialogue between investors policy for institutional investors. This policy will and all companies that have already disclosed their specifically address shareholder resolutions, proxy climate risk to focus on steps that investors and voting, and corporate dialogue on climate risk. We will companies can take to address this risk. share the policy with other institutional investors and with fund managers. Our Commitment: We will engage with companies, recognize leaders, and promote best practices. 3. Call to Action: Adopt a reliable and generally accepted global standard for disclosure of climate 9. Call to Action: Help investors assess climate risk. risk. Our Commitment: Through INCR, we will produce the Our Commitment: We pledge to work with investors “Corporate Governance Score Card on Climate Risk”, around the world to develop such a standard. an annual corporate governance scorecard of 100 large emitters of greenhouse gases. We will distribute this 4. Call to Action: Promote information sharing among scorecard throughout the investor community by the the growing number of institutional investors and end of 2005. This report will inform them of the efforts organizations around the world concerned about that companies and their boards of directors are taking climate risk. to consider and address climate risk. Our Commitment: We will build a new forum for Government international investor collaboration on climate risk. 10. Call to Action: The Securities and Exchange Fund managers and financial advisors Commission (SEC) to require that companies disclose the risk associated with climate change as 5. Call to Action: Improve capacity to assess climate part of their securities filings. risk. Our Commitment: We will work with the SEC to Our Commitment: We will require and validate that disclose climate risk. relevant investment managers, seeking to manage our fund assets, describe the resources, expertise and process that they use to assess the risks associated with climate change. 23 References 1 Carbon Trust, IIGC and Mercers “A Climate for Change: A Trustee’s Guide to Understanding and Addressing Climate Risk” June 2005: http://www.thecarbontrust.co.uk/carbontrust/climate_change/trustee1_1.html 2 EUROSIF Pension Programme “Transparency Guidelines for Addressing ESG Issues within Institutional Investment” (ongoing): http://www.eurosif.org/pub2/2activ/initvs/transpev/index.shtml 3 EUROSIF Pension Programme SRI Toolkit, December 2004: http://www.eurosif.org/pub2/lib/2004/11/pensiontk/index.shtml 4 UKSIF Just Pensions “Responsible Investment Trustee Toolkit” April 2005: http://www.uksif.org/J/Z/Z/lib/2005/files/04/jp-trtk/jp- trusteetoolkit-2005.pdf 5 UKSIF Just Pensions Sector Reports for Trustees: http://www.uksif.org/J/Z/Z/jp/publ/main/index.shtml 6 The Investor Network on Climate Risk: http://incr.com/ 7 Enhanced Analytics Initiative: http://www.enhancedanalytics.com/ 8 http://www.unepfi.org/work_programme/investment/principles/index.html or www.unglobalcompact.org 9 http://www.theclimategroup.org/index.php?pid=688 10 The Pharmaceutical Shareowners Group: http://www.pharmashareownersgroup.org/ 11 PharmaFutures: http://www.pharmafutures.org/ 12 CalPERS Clean Technology Investment Press Release: http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2005/may/enviro-tech- program.xml 13 Watson Wyatt “Changing Lanes; Thinking Ahead – doing risk better” (December 2004) 14 http://www.abrapp.org.br/portal/ 15 Le Fonds de Réserve pour les Retraites (FRR): http://www.fondsdereserve.fr/ 16 New Zealand Superannuation Fund: http://www.nzsuperfund.co.nz/ 17 Norwegian Government Petroleum Fund Ethical Guidelines: http://odin.dep.no/fin/english/topics/p10001617/p10002777/006051- 990433/dok-bn.html 18 UKSIF “Investing Responsibly: A Technical Guide for Financial Advisors”: http://www.uksif.org/Z/Z/Z/lib/2005/files/06/rr-ifatk/UKSIF-IFAtk- TechGuide.pdf 19 Mercer Investment Consulting, 2005 Global Fear Forecast: http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml?idContent=1174905 20 Thomson Extel and UKSIF SRI Survey 2005, July 12, 2005 21 World Economic Forum and AccountAbility “Mainstreaming Responsible Investment” January, 2005: http://www.weforum.org/pdf/mri.pdf 22 Generation Investment Management: http://www.generationim.com/ 23 http://www.siran.org/sust.html 24 Carbon Disclosure Project: http://www.cdproject.net/ 25 ISS Preliminary 2005 Postseason Report: http://www.issproxy.com/pdf/2005PostSeasonPreliminaryReport.pdf 26 UK Shareholder Voting Working Group “Review of the Impediments to voting UK shares: Progress one year on” March 2005: http://www.investmentuk.org/press/2005/20050314-01.pdf 27 http://www.eurosif.org/pub2/lib/2004/10/transpev/eurosif-TGs-Engt-Vtng_PILOT.pdf 28 Morgan Stanley, July 21 2005, “Thoughts on SRI Research” by Angela Dean (Morgan Stanley Equity Research) and Juan Garin (Oxford Analytica) 29 Rainforest Action Network, Global Finance Campaign: http://www.ran.org/ran_campaigns/global_finance/ 30 www.ifc.org 31 ISO14001: 2004 What Do Investors Need to Know: http://www.asria.org/publications 32 http://www.asria.org/publications 33 http://www.mistra.org/mistra/english/whatson/news/news/5.17aaa0e104a8ab366980005081.html 34 UK Department of Trade and Industry “Guidance on the OFR and changes to the directors’ report”, April 2005: http://www.dti.gov.uk/cld/OFR_Guidance.pdf 35 www.theclimategroup.org/index.php?pid=701 36 London Stock Exchange Corporate Responsibility Exchange: http://www.londonstockexchange.com/en-gb/products/irs/cre/ 37 General Electric’s Ecomagination Programme: http://ge.ecomagination.com/@v=08042005_0132@/index.html 38 US Environmental Protection Agency, Climate Leaders Project: http://www.epa.gov/climateleaders/ 39 Common Code for the Coffee Community: http://www.sustainable-coffee.net/ 40 Electronics Industry Code of Conduct: http://www.hp.com/hpinfo/globalcitizenship/environment/pdf/supcode.pdf 41 KPMG International Survey of Corporate Responsibility Reporting 2005: http://www.kpmg.com/news/index.asp?cid=1040 42 http://www.siran.org/pdfs/csrreportingpr.pdf 43 One-Report: http://www.one-report.com/ 44 http://www.iso.org/iso/en/commcentre/pressreleases/2005/Ref953.html 45 http://www.eurosif.org/pub2/2activ/initvs/transp/index.shtml 46 http://www.tase.co.il/html2/news/2005/20050214.htm 47 http://www.trucost.com/FTSEdisclosure.html 48 Reports can be found at: http://capitalmarkets.wri.org/ 49 WWF and Allianz, June 2005: http://www.panda.org/about_wwf/what_we_do/climate_change/news/news.cfm?uNewsID=21477 50 Business and Human Rights Resource Centre: http://www.business-humanrights.org/Home 51 http://incr.com/05investorsummit/pdf/INCR_05_call_for_action.pdf 24 2121 Pennsylvania Avenue, NW Washington, DC 20433 Tel 202.473.3800 Fax 202.974.4384 Www.ifc.org