Expectations of the Financial Service Sector “How is Social Responsibility reporting being tied to shareholder value, and with what success?” “How is Social Responsibility reporting being tied to shareholder value, and with what success?” Stan Craig - First Vice President Office of Investment Performance Stan Craig - First Vice President Office of Investment Performance

The Age of Revolution “We now stand on the threshold of a new age – the age of revolution. In our minds, we know the new age has already arrived; in our bellies, we’re not sure we like it…” “First the revolutionaries will take your market and your customers. Next they will take your best employees. Finally, they will take your assets.” “Never has incumbency been worth less.” - Gary Hamel Leading the Revolution “We now stand on the threshold of a new age – the age of revolution. In our minds, we know the new age has already arrived; in our bellies, we’re not sure we like it…” “First the revolutionaries will take your market and your customers. Next they will take your best employees. Finally, they will take your assets.” “Never has incumbency been worth less.” - Gary Hamel Leading the Revolution

Issues from the Financial Community Relevant to asset management? Measurable? A performance issue? A serious investor concern? Relevant to asset management? Measurable? A performance issue? A serious investor concern? Is Corporate Social Responsibility…

Is Corporate Social Responsibility relevant to Asset Management? One out of every eight dollars under professional management in the United States today is part of a socially responsible portfolio. The $2.16 trillion being managed by major investing institutions (including pension funds, mutual fund families, foundations, religious organizations and community development financial institutions) accounts for roughly 13 percent of the total $16.3 trillion in investment assets under management in the U.S. Since 1997, total assets under management in screened portfolios for socially concerned investors rose 183 percent, from $529 billion to $1,497 billion. Assets in socially screened mutual funds grew by 60 percent to $154 billion, and assets in screened separate accounts grew 210 percent to $1,343 billion. One out of every eight dollars under professional management in the United States today is part of a socially responsible portfolio. The $2.16 trillion being managed by major investing institutions (including pension funds, mutual fund families, foundations, religious organizations and community development financial institutions) accounts for roughly 13 percent of the total $16.3 trillion in investment assets under management in the U.S. Since 1997, total assets under management in screened portfolios for socially concerned investors rose 183 percent, from $529 billion to $1,497 billion. Assets in socially screened mutual funds grew by 60 percent to $154 billion, and assets in screened separate accounts grew 210 percent to $1,343 billion. From An Asset Standpoint From A Performance Standpoint 88 percent of the largest socially responsible funds get top ratings. Two thirds of the broader universe of social funds earn highest ratings. Top-performing socially screened funds found in key asset classes. 88 percent of the largest socially responsible funds get top ratings. Two thirds of the broader universe of social funds earn highest ratings. Top-performing socially screened funds found in key asset classes.

Is Corporate Social Responsibility Measurable? What are the standards? Can they be quantified? “Measure what matters” - if it isn’t measured, it can’t be managed. What are the standards? Can they be quantified? “Measure what matters” - if it isn’t measured, it can’t be managed.

Is Corporate Social Responsibility a Performance Issue? Investment Performance is the primary goal of asset management. Investment Performance involves risk: – Market Risk – Legislative Risk – Sector Risk – Tax Risk – Company Risk – Event Risk Does corporate social responsibility enhance value? Investment Performance is the primary goal of asset management. Investment Performance involves risk: – Market Risk – Legislative Risk – Sector Risk – Tax Risk – Company Risk – Event Risk Does corporate social responsibility enhance value?

Is Corporate Social Responsibility a Serious Investor Concern? The Institutional Investor - a growing concern The Individual Investor - a growing concern A shift from avoiding the negatives to embracing the positives. The Institutional Investor - a growing concern The Individual Investor - a growing concern A shift from avoiding the negatives to embracing the positives. “The business of business is to enhance shareholder value in the long term, but this is something which can only be done if the business is focused on ensuring that it satisfies - indeed exceeds - the standards of behavior expected of it by the community or communities in which it operates. - Social Responsibility - Business Challenge Peter McKinlay, McKinlay Douglas Limited

A Quartet of Interests A high rate of return for shareholders is only achieved when we establish high- quality relationship with customers. Profitability depends on the Bank having solid relationships with satisfied customers. Enduring customer relationships are generated by qualified employees who identify with the Bank. The Bank’s commitment to the community provides employees, customers and shareholders an opportunity to positively identify with the Bank. - Deutsche Bank, Sustainability Economics, Ecology & Social Responsibility A high rate of return for shareholders is only achieved when we establish high- quality relationship with customers. Profitability depends on the Bank having solid relationships with satisfied customers. Enduring customer relationships are generated by qualified employees who identify with the Bank. The Bank’s commitment to the community provides employees, customers and shareholders an opportunity to positively identify with the Bank. - Deutsche Bank, Sustainability Economics, Ecology & Social Responsibility Shareholders Customers Employees Society

What is the Current View on Wall Street Risk avoidance and performance enhancement Client preferences My best clients deserve my best attention “He who has the most information wins” My stock price is important Look for more interest, participation and involvement in Corporate Social Responsibility and all that it involves. Risk avoidance and performance enhancement Client preferences My best clients deserve my best attention “He who has the most information wins” My stock price is important Look for more interest, participation and involvement in Corporate Social Responsibility and all that it involves.

Conclusion “We are aware in UNEP that commercial banks cannot and should not be expected to act as environmental policemen, monitoring and enforcing regulatory compliance among your borrowers. That is not the role of lenders. However, we do believe that – as key economic actors – the more you know about environmental risk and opportunities, the better. The more you begin to view the environmental sector as an arena either to make money, through smart lending and investment practices, or not to lose money, by avoiding investments with potentially costly environmental risks, the better. And the more closely the financial services sector integrates environmental considerations into everyday economic practices, the closer we move to realizing the economic imperative which underlies sustainable development.” - Dr. Klaus Topfer, Executive Director United Nations Environmental Programme “We are aware in UNEP that commercial banks cannot and should not be expected to act as environmental policemen, monitoring and enforcing regulatory compliance among your borrowers. That is not the role of lenders. However, we do believe that – as key economic actors – the more you know about environmental risk and opportunities, the better. The more you begin to view the environmental sector as an arena either to make money, through smart lending and investment practices, or not to lose money, by avoiding investments with potentially costly environmental risks, the better. And the more closely the financial services sector integrates environmental considerations into everyday economic practices, the closer we move to realizing the economic imperative which underlies sustainable development.” - Dr. Klaus Topfer, Executive Director United Nations Environmental Programme