1www.innovestgroup.com

Shareholder Value Workshop

Saratoga, June 22, 2005

Hewson BaltzellPresident

4 Times Square, 3rd FloorNew York, NY 10029

United StatesTel: 212-421-2000

Fax: 212-421-9663hbaltzell@innovestgroup.com

2

Outline

• Innovest Overview

• Innovest Client Research Portal

• United Nations Global Compact Plus

• Review of 2500 companies

• Country screens

• Update on Pension Fund Activity

• Examples of How Institutions are Using Research

• Other Research of Interest

3

What We Do

• Innovest is an independent sub advisory investment research firm which analyzes the effect of intangible value factors on corporate performance

• We rate companies on these issues from AAA (top) to CCC (Bottom)

• Innovest’s perspective: AAA companies are those which supply the goods and services which we demand, with the lowest environmental impact relative to their peers and in a socially equitable manner.

• Our goal: Change the DNA of Wall Street to incorporate environmental and sustainability issues

4

Company Overview

Background

• Specialist investment research provider,focusing on non-traditional drivers of investment risk and returns. Leading indicators of financial performance – and overall management quality – include companies’ environmental, social, and governance performance, all factors of growing importance.

• Coverage universe of over 2100 global companies in over 60 sectors

• Founded in 1995 and has since grown to approximately 50 professionals

• Offices in London, New York, Toronto, Paris, Melbourne, clients in 20 countries

• Chairman Emeritus was former Chief Investment Officer of TIAA-CREF, one of the largest pension funds in North America

• Strategic investors include ABP, largest pension fund in Europe

• Serves both mainstream and SRI investment clients

• $1.1 billion under structured sub-advisory mandates

5

6

What We Do

7

What We Do

8

9

10

11

Country Mo

net

ary

T

ran

spa

ren

cy

Da

ta

Dis

sem

ina

tio

n

Ac

cou

nti

ng

Pa

yme

nt

Sy

ste

m:

Ce

ntr

al

Ban

k

Se

curi

ties

R

eg

ula

tio

n

Au

dit

ing

Fis

cal

T

ran

spa

ren

cy

Co

rpo

rate

G

ov

ern

ance

Ba

nki

ng

S

up

erv

isio

n

Pa

yme

nt

Sy

ste

m:

Pri

nci

ple

s

Inso

lve

nc

y

Fra

me

wo

rk

Mo

ney

L

au

nd

eri

ng

Insu

ran

ce

Su

per

vis

ion

Afghanistan 2 2 2 1 3 2 1 2 2 2 1 3 2

Albania 3 2 2 2 3 2 1 3 2 2 2 2 2

Algeria 1 2 3 2 2 1 3 2 2 3 2 2 2

Andorra 2 2 2 2 1 2 2 1 2 2 2 2 2

Angola 3 2 2 2 2 2 1 2 2 3 2 2 2

Antigua and Barbuda 3 3 3 2 3 3 2 1 2 3 2 2 3

Argentina 1 1 2 2 2 1 2 1 2 3 1 1 3

Armenia 2 3 2 3 2 2 2 2 1 2 3 3 2

Australia 3 2 1 1 2 1 2 2 2 3 2 2 2

Austria 2 1 2 1 1 2 1 1 2 2 2 2 3

Azerbaijan 2 2 1 2 2 2 2 2 2 3 3 2 2

Bahamas 2 2 2 3 2 2 2 2 2 2 2 2 2

Bahrain 3 2 2 3 2 2 3 2 3 2 3 1 2

Bangladesh 2 2 3 2 2 2 1 2 2 2 2 2 2

Barbados 1 2 2 2 1 2 2 3 2 2 3 2 2

Belarus 2 2 1 2 2 2 2 3 3 2 2 2 3

Belgium 2 2 2 2 2 2 2 1 2 1 1 3 3

Belize 2 1 3 2 1 2 2 2 1 2 2 2 2

Benin 1 2 2 2 2 2 3 2 2 1 2 2 2

Bhutan 2 2 2 2 2 1 2 3 2 2 2 2 3

Bolivia 1 3 2 2 2 2 3 2 1 2 2 2 2

Bosnia and Herzegovina 3 2 3 3 3 1 2 3 1 3 2 2 2

• “Fiduciary Duty”

• Pension fund consultants as “gate keepers’

• Relationship between “mission” and “investments”

Financial Sector Drivers for theEvolution of U.S. Environmental Laws and PracticeEmerging Solutions Challenges

• Broader array of risk

• Examples

• Walking the Talk

Pension Fund Investment Strategy

13

That was then…

New Views of Fiduciary Requirements:

• Environmental and social factors were believed to lie OUTSIDE the purview of fiduciaries’ proper focus on purely financial risk and return.

• Growing body of academic and practical evidence that paying – and not paying – attention to these factors does impact returns.

• European and Australian pension legislation now mandates addressing environmental and social factors; rest of world cannot lag behind for long in a globalized investment climate.

• Social/environmental/governance risks ARE, increasingly, financial and competitive risks. Therefore, today’s prudent fiduciaries MUST concern themselves with companies’ social/environmental performance and strategic positioning.

But…

This is now…

Fiduciary Duty

14

New Views of Fiduciary Requirements:

Fiduciary Duty

Irony – if Saratoga were located in Surrey instead of New York, it would be a legal requirement for public pension funds to disclose what type of environmental social and ethical research is used in the investment management process

Mainstream investors/consultants continue to say, “No Evidence”

I refer the jury to:

Exhibit A – Journal of Asset Management, Vol 5, No 4 (Gluck et al)

Exhibit B – Financial Analysts Journal, Vol 61, No 2 (Derwent et al)

And many other studies

15

Pension fund consultants as “gate keepers’

• Pension fund managers and directors often rely heavily on consultants to create their portfolios

• Pension fund consultants are risk averse – there is no upside for them to try something new with client portfolios

• As a result, they will almost always recommend against any use of environmental and sustainability research

• Only great resolve on the part of pension fund staff and directors can overcome this – “who’s in charge, anyway?”

• Beneficiaries can also play a role – “whose money is it, anyway?”

• When forced by clients, consultants do help make RFPs, though some are too restrictive, thus thwarting innovation

16

Relationship between “mission” and “investments”

• Disconnect – Very few pension funds actually use sustainability research in their investment process, even when their organization’s mission would indicate they should • United Nations

• World Bank

• Most states

• Most companies

• Most NGOs

• Nevertheless, many efforts in corporate activism• Carbon Disclosure Project - signatories represent over $22 trillion in

assets under management

• Investor Network on Climate Risk (INCR) – members include many US state treasurers

• Institutional Investor Group on Climate Change (IIGCC) – the UK-based counterpart of the INCR

• Many shareholder resolutions and proxy voting efforts

17

Relationship between “mission” and “investments”

• Carbon Disclosure Project – Pension Fund Signatories

• Over 150 signatories

• Over 30 of which are pension funds e.g. CalPERS, CalSTRS, etc. or state officials such as treasurers

• Over $22 trillion of assets under management

Capital Backing Major Shareholder Initiatives on Climate Change

0

5

10

15

20

25

CarbonDisclosure

Project

INCR IIGGC

Trillions USD

1818

CDP Signatories

ABP

Allianz / Dresdner

AXA

BP Investment Management

BNP Paribas

Connecticut Retirement Plans and Trust Funds

Credit Suisse Group

Development Bank of Japan

Deutsche Asset Management

HSBC Holdings

Legal & General

Merrill Lynch Investment Managers

Munich Re

Neuberger Berman

Ontario Teachers Pension Fund

Rabobank

Societe Generale Asset Management

Storebrand

Swiss Re Asset Management

State Street Global Advisors

Treasurer, State of Maine

UBS Global Asset Management

University Superannuation Scheme

Wells Fargo

A Sampling of the Signatories

19

Relationship between “mission” and “investments”

• Examples of walking the talk

• ABP – Loyalis Fund, investment in Innovest, lead investor in Emerging Markets Sustainability Fund (Rexiter/Innovest)

• Environment Agency of England & Wales (SSgA/Innovest)

• BP Pension (uses Innovest research in pension investments)

• British Telecom Pension (owns asset manager Hermes, active in this field and user if Innovest research)

• CalPERS – recent Request For Proposal for $500m Environmental Equity Management both US and Global; $200m environmentally focused private equity fund in development

• CalSTRS – recent Request For Proposal for $3b Emerging Markets with explicit requirements related to environmental and social issues; $250m environmentally focused private equity fund in development

• State of Vermont - recent small Request For Proposal for Environmental Equity Management

20

Financial Institutions ABN-AMRO Bank ABN-AMRO Asset Management ABP Investments Aeltus Investment Management (ING) Bank Sarasin BNP Paribas BP Pension Brown Brothers Harriman Contra Costa County Employees’

Retirement Association Credit Lyonnais Daiwa Securities Dreyfus Investment Advisors Friends, Ivory & Sime Frontier Capital Management Glenmede Trust Hermes (British Telecom Pension) John A. Levin & Co.

Legg Mason Funds Management Lombard Odier & Cie Mellon Capital Management Mellon Equity Neuberger Berman New Zealand Superannuation Fund Rockefeller & Co. Schroders Investment Management Societe Generale SNS Asset Management Swiss RE Asset Management State Street Global Advisors T. Rowe Price UBS Investment Bank Wellington Management World Bank Zurich Scudder

Partial Client List

Innovest investment research has been used by:

21

Other Research of Interest - Erasmus et al

The Eco-Efficiency Premium in the U.S. Equity Market

• Study by Erasmus University and Maastricht University, The Netherlands, October 2003

• Constructed 2 portfolios, one consisting of high-ranked companies and the other of low-ranked companies (U.S. companies only)

• Used a best-in-class approach on a sector by sector basis and remained sector-neutral overall

• Ran portfolios from May 1997 to December 2002

• Results:

• Best-in-class portfolio had annual return of 5.76%

• Worst-in-class portfolio had annual return of 0.84%

• Cumulative differential over the test period was about 30%

• Conclusion: Eco-efficient companies as a group are already being rewarded in the marketplace

22

• Selected stocks within each industry with the highest return potential while satisfying all the investment constraints

• No companies were excluded from the eligible universe

• Stringent risk controls

Neutral to market, value/growth, and large/small biases

Maximum active security weight +/- 2.0%

Maximum tracking error 5.0%

Active Industry weights +/- 3.0%

• Investable universe: Russell 1000

• Benchmark: S&P 500 Index

• Turnover of less than 100% per annual (one-way)

• Transaction cost assumed to be 2% per year

• Testing period: January 1998 to February 2004

Simulation conducted using SSgA Active Quantitative strategy in combination with Innovest Environmental Research

Other Research of Interest - SSGA

23

• Environmental alpha has power as a stand-alone factor to determine future stock returns over the testing period (December 1998 to February 2004)

• Over the simulation period:

• Average Innovest rating of S&P 500 Index was BB while average rating of US Core Environmental Strategy was AA

• US Core Environmental portfolio produced an annual excess return of 6.82% (IR=1.35%), over the benchmark (S&P 500 Index), net of transaction costs

• Environmental inputs added 1.88% annually and 12.4% cumulatively over the study period relative to the “baseline” portfolio without Innovest data

Other Research of Interest - SSGA

24

Incorporating environmental with financial inputs yields impressive results

Performance Comp Annual Cum Annual Tracking Info Annual Monthly Hit Annual HitResults Return Return Ex Return Ex Return Error Ratio Turnover Ratio Ratio

US Core Env. 41.52% 1.72% 40.82% 6.82% 5.04% 1.35 102% 64.52% 80.00%

S&P 500 Index 0.70 0.13

The performance shown does not represent actual performance, but is hypothetical performance created through a back-test. The results shown do not represent the results of actual trading but were achieved by means of the retroactive application of a hypothetical model that was designed with the benefit of hindsight. These hypothetical results should not be considered indicative of the skill of the adviser.Historic performance is not necessarily indicative of future performance, which could differ substantially. The performance figures are reported on a gross basis, but net of transaction and custody charges. Additional fees, such as the advisory fee, would reduce the return. For example, if an annualized gross return of 10% was achieved over a 5-year period and a management fee of 1% per year was charged and deducted annually, then the resulting return would be reduced from 61% to 54%. The performance includes the reinvestment of dividends and other corporate earnings and is calculated in U. S. dollars. The S&P 500 is an unmanaged index of common stocks which assumes the reinvestment of dividends and distributions. It does not include any management fees or expenses. One cannot invest directly in an index. The trademark is property of Standard and Poor’s.

-40%

-20%

0%

20%

40%

60%

Fund Index

1999 2000 2001 2002 2003 2004(2 mos)

Other Research of Interest - SSGA

25

Other Research of Interest – Columbia

Economic Benefits of Certification Programs

• Study by Center for Environmental Research & Conservation at Columbia

• Among other subjects, investigated financial market reactions to sustainability performance, including fixed income markets (for which Innovest ratings were used)

• Conclusion:

• Companies in industries rated by Innovest as having as least environmental impact had on average a 50 basis points lower spread over Treasuries than companies in the industries with the highest environmental impact.

• Companies rated in the top half in their industry had on average a 34 basis points lower spread over Treasuries than companies rated in the bottom half of that industry (of those companies and industries for which data was available and gathered).

• A portfolio of corporate bonds of companies rated highest by Innovest in each of the industries analyzed has a spread over Treasuries of 40 basis points lower than a similar portfolio of corporate bonds of companies rated lowest in each of the industries analyzed.

• There was no correlation between the Innovest company score and the bond rating (pearson correlation coefficient = 0.093).

26

Other Research of Interest – Hedge Fund

• Development of a hedge fund strategy incorporating environmental considerations: a hedge fund client has been running a wide variety of tests on various potential strategies combining Innovest ratings with financial measures and hedging techniques.

• Innovest AAA-CCC Environmental Risk Rating:

• Long AAA-BBB, Short BB-CCC

• Industry group weighting factor

• Various Financial models

• Active hedging using Technical Analysis and Risk Management Techniques:

• Combined classical and proprietary technical analysis

• Option overlay strategies

• % Long exposure weighting

• Conclusion:

• Over 7 year test period, hedge strategy including Innovest ratings yielded 22% annual return vs. 15% annual return for strategy not including Innovest ratings

27

Other Research of Interest – Global 100

The Stock Market Value of Sustainability

• Study by Daniel A. Potash, Power Project Financing LLC

• Investigated Price/Earnings ratios as a measure of company value

• Tested Innovest’s Global 100 (as presented at World Economic Forum) against comparable companies not on this list

• Conclusion:

• “The stock market may give better share price valuation in terms of P/E to companies that are perceived of as sustainable versus comparison companies not so designated. “

• Companies in the Global 100 had P/E ratios 15% higher than their peers; this would translate into “billions of dollars of stock market increased value for most large companies traded on major exchanges”.

28

Other Research of Interest - Erasmus et al

The Economic Value of Corporate Eco-Efficiency

• Study by Erasmus University and Maastricht University, The Netherlands, April 2005

• Investigated relationship of eco-efficiency as determined by Innovest and firm value as measured by Tobin’s Q

• Ran tests quarterly from 1997 to 2002

• Results:

• The least eco-efficient companies had values that were significantly lower compared to those of the remainder of the sample

• Environmental winner companies initially did not trade at a premium relative to losers, but that the premium increased strongly over time

• “…the least eco-efficient firms display significant operational underperformance. Our findings, thus, strongly reject the notion expressed by CSR skeptics that the benefits of adopting a strong environmental policy are unlikely to outweigh the costs.”

• Conclusion: “Investors may interpret our results as evidence that corporate environmental performance is a potential source of information that facilitates them in generating superior excess returns.”

29

Industry Sector Number of Companies

Sector Report List Price

Report Date

Advertising 19 $14,500Aerospace & Defense 23 $16,500Air Freight & Couriers 7 $8,500Airlines 12 $11,000Auto Components 19 $14,500Automobiles 19 $14,500 Apr-04Banks - Asia 23 $16,500 May-05Banks - Europe 58 $34,000 Oct-04Banks - N. America 46 $28,000 Apr-05Banks - UK & Ireland 12 $11,000 May-05Beverages & Tobacco 30 $20,000Biotechnology 13 $11,500Broadcasting & Cable TV 31 $20,500Building Products 12 $11,000Commercial Services & Supplies 45 $27,500Commodity Chemicals 11 $10,500 Jan-05Communications Equipment 22 $16,000Computers & Peripherals 17 $13,500 Sep-03Construction & Engineering 14 $12,000 Feb-05Construction & Farm Machinery 9 $9,500Construction Materials 17 $13,500 Jan-05Containers & Packaging 15 $12,500Diversified Chemicals 12 $11,000 Mar-05Diversified Financials - Asia 12 $11,000Diversified Financials - Europe 18 $14,000Diversified Financials - N. America 32 $21,000Diversified Financials - UK 25 $17,500Electric Power Companies - N. America 27 $18,500 Apr-04Electric Utilities - Intl 31 $20,500Electrical Equipment 32 $21,000Electronic Equipment & Instruments 37 $23,500Employment Services 9 $9,500Energy Equipment & Services 30 $20,000Food & Drug Retailing 40 $25,000 Aug-03Food Products 28 $19,000 Jul-03Gas Utilities 24 $17,000

Innovest Sector Reports

30

Industry Sector Number of Companies

Sector Report List Price

Report Date

Health Care Equipment & Supplies 29 $19,500Health Care Providers & Services 25 $17,500Homebuilding 19 $14,500 May-05Hotels Restaurants & Leisure 40 $25,000Household & Personal Products 18 $14,000Household Durables 20 $15,000Industrial Conglomerates 16 $13,000 Nov-04Industrial Machinery 30 $20,000 Jun-05Insurance - Asia 8 $9,000Insurance - Europe 26 $18,000 Mar-05Insurance - N. America 33 $21,500 Jun-05Insurance - UK & Ireland 13 $11,500Integrated Oil & Gas 28 $19,000 Aug-04Internet Software & Services 8 $9,000 Nov-04IT Consulting & Services 27 $18,500 Nov-04Leisure Equipment & Products 12 $11,000Metals & Mining 28 $19,000 Jan-05Movies & Entertainment 12 $11,000Multiline Retail 27 $18,500 Sep-04Oil & Gas Exploration & Production 20 $15,000Oil & Gas Refining & Marketing 10 $10,000Paper & Forest Products 35 $22,500Pharmaceuticals 37 $23,500 May-05Public Services 12 $11,000 Nov-04Publishing 30 $20,000Real Estate 49 $29,500Semiconductor Equipment & Products 43 $26,500Software 23 $16,500Specialty Chemicals 24 $17,000 Jan-05Specialty Retail 36 $23,000 Jan-05Steel 19 $14,500 May-05Surface Transport 35 $22,500 Nov-04Telecommunications 71 $40,500 Mar-04Textiles & Apparel 31 $20,500 Sep-03Trading Companies & Distributors 12 $11,000

Innovest Sector Reports