1. Responsible Investment and Active Share Ownership December 7 th, 2006 Matt Christensen Eurosif

2. Agenda Eurosif and Responsible Investment Active Share Ownership

3. Eurosif Member Affiliates, 2006

4. Eurosif Activities Events Research Initiatives 2004 2005 EU InsiderPension Fund Toolkit Transparency Guidelines Briefing Events Sector ReportsPension Fund Collaboration Lobbying Transparency Directive Corporate Governance Annual Statement 2006 Eastern Europe Summit Active Share Ownership SRI Study Le Monde newspaper partnership Cross Border Voting Rights

5. Responsible Investment Market is Growing Now represents as much as 10% of worldwide equity investing 2006 64% 35% 1% $3.6 trillion Global SRI Market Source:Eurosif research North America Europe AUS/Asia 2003 84% 16% $2.6 trillion

6. Responsible Investment Evolution: Growth of ‘ESG’ as focus area Screening and best of class approach Socially responsible funds : USA, Canada, UK, Switzerland, Northern Europe Sustainable Development Funds : France & Belgium Best of class approach Environmental Funds : Germany, Northern Europe, Switzerland Environmental criterias 1928198020061970 Screening criterias Ethical Funds : USA Europe 1990 Engagement Engagement Overlay: UK, NL, BE Integration Integration: UK, NL, FR E nvironmental S ocial G overnance S ocial E nvironmental E thical

7. European Responsible Investment Strategies by Value Source: Eurosif SRI Study, 2006 € bn Broad SRI is dominated by the Engagement and Integration strategies

8. Linkage between Responsible Investment and Corporate Governance Risk management compliments focus on corporate control Responsible investment is a means to assess risks that might not traditionally be covered or integrated using traditional financial metrics Corporate governance defines the rights as an owner, covering the control mechanisms that govern the relationships among shareholders, management and stakeholders of a company. Corporate governance can be an enabler of Responsible Investment policy Disclosure, filing resolutions, and voting allows for engagement & voting. Responsible investors share similar interests as those concerned by corporate governance issues (eg – directive on cross border shareholders rights)

9. Agenda Eurosif and Responsible Investment Active Share Ownership

10. Why the Need for an Active Share Ownership Handbook? Investors increasingly want to act as active owners Rise of pension funds as significant actors in financial markets Internationalisation of pension fund portfolios Pressures to act as stewards on behalf of beneficiaries Key challenges investors face in becoming active owners Diverse national rules and regulations Difficulty in exercising their rights to vote on shares across borders Responsible Investing linkage to the 1 Share 1 Vote debate Potential for ‘1 share 1 vote’ to be more democratic, enabling more investors to voice their ESG concerns

11. What is Active Share Ownership? Active share ownership Involves steps that shareholders take when they own or hold stock in a company as opposed to when they buy or sell it Eurosif’s working definition of active share ownership Shareholders make use of their rights in order to monitor, and sometimes influence, how the companies where they invest manage ESG issues The concept relies on three fundamental components The search for long-term profitability The long-term influence of extra-financial factors, such as ESG issues The use of shareholders’ rights, such as the right to vote and the right to ask questions

12. Common Activities of Active Share Owners Voting Dialogue with Management External Communications Shareholder Resolutions Communication with Regulators Collaboration and Coalitions

13. Why Active Share Ownership will Grow: A Renewed Look at Fiduciary Duty What investors are legally allowed to do is evolving Research carried out by UNEP FI with Freshfields suggests that taking ESG issues into consideration is consistent with fiduciary duty when it impacts profitability, and is further relevant when there is a consensus to do so by participants/members/stakeholders Initial conclusions on fiduciary duty Attitudes can be conservative but are changing Growing consensus that investors have to effectively manage their risks, which includes ESG risks

14. Why Active Share Ownership will Grow: Legislation Demanding more Disclosure Related to ESG issues

15. European SRI disclosure regulations Highly developed culture of social welfare Recent Pensions reforms in place AP Fonden offers member choice in DC/super type arrangements SRI principles seen as central to strategy Recent activity of AP7 Fund in human rights “Investment activities shall take environmental and ethical considerations into account without lowering the overall objective of a high return “ Swedish National Pension Funds Government bill The Swedish example

16. Why Active Share Ownership will Grow: Endorsement from Multi-lateral Institutions Global Compact and UNEP FI Principles for Responsible Investment (PRI) 1.We will incorporate ESG issues into investment analysis and decision-making processes. 2.We will be active owners and incorporate ESG issues into our ownership policies and practices. 3.We will seek appropriate disclosure on ESG issues by the entities in which we invest. 4.We will promote acceptance and implementation of the Principles within the investment industry. 5.We will work together to enhance our effectiveness in implementing the Principles. 6.We will each report on our activities and progress towards implementing the Principles. Evolution of the PRI Over 50 investors have signed, representing USD 2 trillion Implementation programme being put in place now

17. Why Active Share Ownership will Grow: Pension Fund Collaboration on ESG Issues Growing trend for pension funds to collaborate on shareholder activism Issues: IIGCC for Climate Change Themes: EAI for Sale-Side Analysts Sectors: Pharma Futures for Pharmaceutical Sector Multilateral: UNEP PRI Reasons investors collaborate Pooling resources: lower cost Pooling resources: greater shareholder power Learn together Crosses borders and issues

18. Why Active Share Ownership will Grow: High Returns Through Incorporation of ESG issues Sustainability Performance for the Long Term can Yield Excellent Returns Calpers’ returns by asset class:20042003 US equities:20.8%31% International equities: 30.9%38.8% Hedge funds:9.8%16.7% Corporate governance:53.5%39.3% International fixed income:8%19.8% US fixed income: 1.4%9.5% Alternative (private equity):12.7%1.8% Real estate:12%8.5% Housing/timber:23.5%20.4%

19. Contact Details Matt Christensen Eurosif Executive Director 11 Avenue de l'Opera 75001 Paris FR Main 33 (0) 1 40 20 43 38 mattc@eurosif.org