Closing panel presentation…

1. Environmental Finance Workshop University of Toronto, October 2004 \\WTORNWCS01_DATA3_SERVER\DATA3\MIC\BUSINESS\Global Team\Jane A\SRI\Canada\UofT Environmental Finance\UofT SRI Oct 2004 panel v2.ppt Closing panel presentation… Okay, so now what? Jane Ambachtsheer Toronto

2. “Socially responsible investing” Today’s umbrella… • “Socially Responsible Investing” is among the more ambiguous terms used in the investment industry today Traditional Emerging The process of selecting or managing investments according to social or environmental criteria (Mission based investors) Integrating social responsibility, governance, and environmental sustainability with investment (Mainstream investors)

3. What Does this have to do with “Environmental Finance”? Socially responsible investors typically separate non-financial indicators into three groups: Social Ethical Environ- mental   SEE SE E Therefore, E is treated the same as SE…

4. Why hasn’t SRI become the “next big thing”? • It is associated with knowingly jeopardizing financial returns • Proponents of SRI are often dismissed on the grounds that they are pushing a social agenda (rather than a financial one) • Mainstream investors are not associated with an explicit social, ethical or environmental agenda • Fiduciaries may be reluctant to adopt SRI principles because they do not know what beneficiaries expect

5. Where does this knowledge leave investors? SRI: Converging with the mainstream? • But a growing body of literature argues that • corporate social performance can impact stock price • SRI funds can produce risk/return characteristics comparable to those of traditional portfolios and • SRI proponents argue that indications of superior social and/or environment performance can • be a proxy for good management • be a source of superior financial performance

6. The $1 million questionHow we tried to find out • In August 2004, we hosted an industry consultation with mainstream stakeholders • “Even defining the issue is hard” • “SRI is like any other issue investors face, it’s a world of gray” • “We can’t make investment decisions based solely on SRI variables” • “Hmm, why not use SRI as another input?” • “In fact, should my investment manager look at these things in order to fulfil his fiduciary duties?” • “As long as it has an aura of being ‘about a social agenda’ – trustees will not want to do it” They started… …and ended

7. How could a “new SRI” fit into the industry? SRI: Less agenda, more materiality Industry Consultation: The conclusions • SRI needs to rebrand (sustainable or responsible investing?) • Proponents need a new angle • Overall, incorporating social and environmental criteria into investment decision making seems like a prudent thing to do (although need more empirical evidence of benefits) • But this isn’t happening today

8. Mission- based Investors Mainstream Investors • “Nuts and berries” crowd • No sin stocks • No weapons • “Vice” funds • Profit above all • Singular financial agenda Converging agendasWhat were often cited night and day…

9. Mission- based Investors Mainstream Investors • Triple-bottom-line performance • Internationally agreed codes and conventions • Risk/return framework Converging agendas…are edging towards centre… Mission- based Investors Mainstream Investors

10. Mission-based investors Mainstream investors All investors Very specific ethical criteria aligned to stakeholder groups Momentum investors • Triple-bottom-line performance • Integrated investment analysis • Holistic risk/return framework Converging agendas…to differ only at the margins?

11. Implications of such convergence Predictions • Widespread incorporation of social and environmental factors by investors in the decision making process could function to raise the bar for “corporate social responsibility” or CSR • This would raise the cost of capital for “riskier” (i.e. bad) firms, creating a financial reward for “good” firms • Bonus: This brings positive social change

12. Reality check: We’re not there yet!What can investors do today? Discuss Discuss the issues, enhance investment principles, governance Vote Develop proxy voting guidelines (directly, or delegate) & publish voting record Engage Engage as a shareholder (directly, or in consortium) Review Review existing portfolios for exposure to social & environmental risks Delegate Delegate to/monitor social and environmental risk analysis by mainstream managers Invest Invest in a niche sustainable investment product

13. Implementation - Pros and Cons of Various Strategies PROS CONS

14. Expectations • Corporate governance and activism will remain ‘hot ticket’, ahead of social and environmental issues • Growth of engagement type products, and further emphasis on engagement/activism within mainstream investing • Most activity among large non-corporate plans (public plans, universities) • Evolution of specific approaches into measurable styles • SRI service/provider market consolidation • Role of clean technology/eco-venture cap?

15. Barriers Drivers • Naysayers • Lingering “moral” reputation and fiduciary concerns • Lack of training/education • Change takes time • What should we call it? • Growing evidence of materiality • Good returns • Corporate scandals • Pressure from stakeholders/reputation risk • Industry integration/sophistication • International legislation • Regional and global initiatives • UNEP Finance Initiative, UN Global Compact, GRI, Carbon Disclosure Project, Investor Network on Climate Risk, Enhanced Analytics Initiative, NYSFA SRI Committee, • Canada: TSFA SRI Lunch (Jan 2005), Conferences (SIO 2005, GLOBE, Venture Forum etc.), SRI Industry Consultations, these workshops! Shaping the future