Sustainable 60 Workshop Strategy & Governance: an investor’s view -

Agenda Why Responsible Investment part of our Strategy? Why is sustainability important to investors? What role for investors – o Investment analysis o Investor oversight Communicating with investors 2

Why do we focus on Responsible Investment? We must manage the Fund in a manner consistent with: Best-practice portfolio management; Maximising return without undue risk to the Fund as a whole; Avoiding prejudice to New Zealand’s reputation as a responsible member of the world community We must establish policies, standards and procedures that cover: ethical investment including avoiding prejudice; and use of voting rights We believe that: Responsible asset owners should have concern for ESG issues Improving ESG can improve long-term financial performance 3

Standard for Investors: UNPRI P1-6GNZS Workstream Principle Description P1Integration We will incorporate ESG issues into investment analysis and decision-making processes. P2Ownership We will be active owners and incorporate ESG issues into our ownership policies and practices. P3Disclosure We will seek appropriate disclosure on ESG issues by the entities in which we invest. P4Best Practice We will promote acceptance and implementation of the Principles within the investment industry. P5Collaboration We will work together to enhance our effectiveness in implementing the Principles. P6Communication We will each report on our activities and progress towards implementing the Principles. 4

Standards for companies Corporate Governance guidelines UN Global Compact Subject areaPrinciples Human rights 1.Support and respect human rights 2. No complicity in abuses Labour 3. Uphold freedom of association 4. Eliminate forced/compulsory labour 5. Abolish child labour 6. Eliminate discrimination Environment 7. Precautionary approach 8. Act to promote greater responsibility 9. Encourage environmentally friendly technologies Anti-Corruption 10. Work against corruption Why these benchmarks? Universally recognised Signatories include our peers, investment managers and investee companies Unlikely to be superceded International Corporate Governance Network guidelines Proxy Agency voting guidelines 5

Why is sustainability important to investors? View in two ways : Long-term themes & company analysis Themes include: Increased sensitivity to climate change by the state and the individual Natural resource scarcity - energy, food and water Demographics & emerging markets Company analysis includes: management quality, brand, skills (IP), resources (people, capital, natural) & regulatory environment management of risks & opportunities from environmental, social and governance themes Less clarity around how this is priced in from an investors perspective Also impact it has on other parts of portfolio – universal owners perspective May not be called sustainability - but that is just a definitional issue 6

Warning signs prior to the BP disaster Source: Yahoofinance.com “ “ Up until April 19 (the day before the Deepwater Horizon explosion), his [BP’s] performance was excellent. An investor close to BP quoted by The Financial Times, July 25th 2010 Texas Refinery Accident Texas Refinery Accident Alaska Oil Spill Azerbaijan Gas leak Violations Of Clean Water Act Penalties From the OSHA Gulf of Mexico Oil spill Thunder Horse Accident Charges for Manipulation Of gas market Grangemouth 2000 Warning signs leading up to BP disaster

KKR Green Portfolio Results 8 Total Greenhouse Gas Emissions345,000 metric tons $160,000,000 Waste1.2 million tons Forest Resources8,500 tons Program cumulative results for

PRIMEDIA: Paper Use Reduction Notes:See methodology section for description of avoided and efficiency calculations. The total % change is aggregate change between the baseline year and the most recent year of data. All other % changes are expressed as year-over-year. Results-to-date AverageTotal Change in absolute paper use -25.0%-39.0%-32.0%-54.3% Estimated avoided paper use (tons) 3,2005,3004,2008,500 Avoided/Actual paper use 29%79%48% Estimated avoided costs $2,931,000$4,561,000$3,746,000$7,491,000 Change in intensity (tons/$1000 revenue) -22.4%-28.1%-25.2%-44.2% KKR Portfolio - value growth

Investment Analysis – growing role of ESG research 10 Basic data and ratings Bloomberg MSCI Array of specialists Integration into investment analysis Sell-side: HSBC; Goldman Sachs; JB Were; Citi Buy-side: varies with active stock pickers more likely those with quantitative models But ratings could change that: e.g. MSCI ESG rating seeks to reflect three key questions: What are the key ESG risks and opportunities applicable to each sector? Do companies have ESG risk management strategies commensurate with the ESG risks they face? Do companies have strategies to capture potential opportunities in the ESG space? UNPRI is a driver but also an indicator of changing perception of fiduciary role

Investor ownership & oversight Why have an ownership strategy? Responsible asset owners should have concern for ESG issues Improving ESG practice can improve long-term financial performance Institutional investors are “universal owners” and through collaboration can reduce value destroying practices across markets Exercising rights as shareholders helps to reduce agency risk and improve shareholder oversight Activities Governance & Voting – to encourage high governance standards across markets & asset classes Engagement –ask companies to address significant breaches of standards & encourage best practice Substantial owner (e.g. NZ companies) – engagement on material ESG issues with companies in which we have a significant stake 11

Investment landscape can get complicated Asset Owner Fund Manager Research Provider Assets Government and Regulators Institutional Investors Governance Policy Standards e.g. UN PRI Investment Mandates Investment Managers Advisors In-house Manager Sell Side e.g. E.A.I Proxy Voting RI Research Equities Bonds Other Collaborative Initiatives e.g. CDP Portfolio Monitoring Voting Engagement – investors & companies Beneficiaries

Communicating with investors Integrate into normal communication channels – annual report; website, meetings Board and CEO main points of contact – ensure key issues are on Board agenda Strategy and governance investors main focus – and bottom line Develop strategy, KPIs, targets and report e.g. GRI Consider third party verification/assurance Monitor investor trends on ESG factors 13

THEMATICS Sustainability is about: Building trust with stakeholders Being prepared Being opportunistic 14