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Recycled Paper TBLI Conference Europe 2010 November 12, 2010 Mitsubishi UFJ Trust and Banking Corporation Case Study Integrating ESG into Portfolio

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Page 1: Masahiro kato

Recycled Paper

TBLI Conference Europe 2010

November 12, 2010

Mitsubishi UFJ Trust and Banking Corporation

Case Study~  Integrating ESG into Portfolio  ~

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Corporate StructureCorporate Structure

■ MUFG is the largest financial group in Japan by assets (as of end Mar 2010)

■ Major MUFG companies – Trust Bank’s asset management is institutional / Pensions

Source: Annual Report

Total Assets (bln Yen) (bln USD)MUFG 204,107 2,268

A 123,160 1,368B 156,254 1,736

Mitsubishi UFJ Financial Group

Mitsubishi UFJ Trust & Banking

Mitsubishi UFJ Morgan Stanley Securities

Bank of Tokyo-Mitsubishi UFJ

Mitsubishi UFJ Asset Management (Domestic Retail)

100%

100%100%

55%

30% 15%

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Asset Under ManagementAsset Under Management

One of the largest pension managers in Japan with $309 billion in AuM (as of Mar 2010)

(US$ billion)Japanese Equity 64.5 Japanese Bonds 157.2

Active 15.3 Active 37.4Passive 42.4 Passive 81.5

Enhanced 4.7 Enhanced 9.0Absolute Return 1.8 Other 29.3

Other 0.3 International Bonds 27.1International Equity 30.8 Active 8.3

Active 12.0 Passive 15.2Passive 18.2 Enhanced 3.3

Enhanced 0.6 Other 0.2Other 0.0 Other 29.4

Convertibles 0.1 Total 308.9

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The SRI Environment ~ SRI funds in Asia~The SRI Environment ~ SRI funds in Asia~

ASrIA SRI Funds Portal SRI Funds SummaryLatest Update: October 2010

Total Number of SRI Funds in Asia (including faith-based funds): 418Total Number of SRI Funds in Asia (excluding faith-based funds): 260

Public Funds Private EquitySRI Pension

MandatesFaith-based

CountryTotal

China 3 0 0 0 3 Hong Kong 56 0 0 1 57 Japan 70 1 0 0 71 Korea 61 2 6 0 69 Taiwan 25   0 0 0 25 Singapore 26 1 0 8 35 Malaysia 0 0 0 146 146 Indonesia 1 1 0 1 3 India 1 1 0 1 3 Thailand 2 0 0 1 3 Segment Total 248 6 6 158 418

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OverviewOverview ① Market Size

Total SRI Market Size as of December, 2009 :  Approximately US$ 8B ⇒ US$ 7B from Retail investors ⇒ US$ 1B from Pension funds

② Pension Fund Survey Awareness of SRI :  55 % = Know    29 % =

Heard Investment to SRI : 7 % = Invested 25 % =

Considering

Negative Reasons :  31 % = Lack of Information : 15 % = No Establishment as

Investment Style:  15 % = No Incentives on SRI

Positive Reasons :  27 % = Assent on SRI Concept:  23 % = Accepted Proposal from

Asset Management:  17 % = Effectiveness of

Diversified Investment

(Source : SIF-Japan, The Research Institute for Policies on Pension and Aging).

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Recognition through “ Materiality Workshop ”

Examples of Investor Viewpoint

< Evaluation >  CSR is effective criterion on “ Quality of Management ”

< Approach > “Logic” is the key to connect CSR with “Value”

< Method > Evaluate importance of CSR to “Value”  = “ Materiality”

CooperationCooperation

Investor Point of View Company Point of View

First Priority Performence=

Don't Use CSR Report Too Wide=

Keen on Value "Materiality" is Important=

CurrentSituation

"Materiality" Spreading now=

Do CSR for Various Stakeholder Wide=

Few Company No Active on "Value" Disclosure=

(Source : Materiality Workshop).

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ESG Efforts ~ Change in priorities ~ESG Efforts ~ Change in priorities ~

Change of corporate ESG efforts from the “Cost” to the “Investment” category

CSR Efforts

Defensive CSR

Offensive CSR through the company’s own business(Consideration of Materiality)

Time axis/Economic Returns

Infrastructure investment to prevent occurrence of unforeseen

expenses

Forward investment in sustainable business growth

Responsible corporate investment in sustainable

socioeconomic growth

Risk reduction investment to prevent illegality, etc.

Time axis/Social Returns

(Source) Prepared by Mitsubishi UFJ Trust and Banking Corporation

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ESG Efforts ~ Example of management resource distribution ~ESG Efforts ~ Example of management resource distribution ~

経営資源

(例:人材、資本など)

設備投資 研究開発 広告宣伝 CSR・・・・ ・・・・ ・・・・

能力増強効率化

有形固定資産

売上増減減価償却費増減

新技術開発新設計開発

無形固定資産

売上増減研究開発費増減

フ ラ゙ント イ゙メー シ 向゙上

固定資産繰延資産

売上増減広告宣伝費増減

無形固定資産

売上増減費用増減

評判リスク・事業機会環境・社会貢献

(Investee)

(Goal)

(貸借対照表)

(損益計算書)

Management Resources(Ex.: Personnel, capital, etc.)

Capital investment R&D Advertising CSR・・・・ ・・・・ ・・・・

Skill improvementStreamlining

Tangible fixed assets

Sales increase/decreaseDepreciation allowance increase/decrease

New technologydevelopmentNew design development

Intangible fixed assets

Sales increase/decreaseR&D costincrease/decrease

Brand image enhancement

Fixed assets / deferred assets

Sales increase/decreaseAdvertising cost increase/decrease

Intangible fixed assets

Sales increase/decreaseCost increase/decrease

Reputation risk / Business opportunityEnvironmental / Social contribution

(Balance Sheet)

(Income Statement)

(Source) Prepared by Mitsubishi UFJ Trust and Banking Corporation

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Approach ComparisonApproach Comparison

<Example of Extra Financial Approach>

Macro AnalysisClimate change, demographics, globalization, etc.

Sector Analysis

Industry regulations, business characteristics, etc.

Company AnalysisEnvironmental products, technical ability, CSR policies, etc.

+CSR strategy, results of efforts, promotional structures, etc.

Attention to categories emphasized in company evaluation is important in the extra financial approach as well

<Example of Financial Approach>

Macro Analysis

Economic growth rate, fiscal revenue and expenditure, demographics, etc.

Sector Analysis

Sector growth rate, price trends, competition, technological trends, etc.

Company AnalysisSales growth rate, profit rates, balance sheet analysis, etc.

+Quality and policies of management lineup, actual results, organizational structures, etc.

Evaluation of categories emphasized in judgments of both quantitative and qualitative aspects of future results

(Source) Prepared by Mitsubishi UFJ Trust and Banking Corporation

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MovementMovement

View of Target

CSR Impact Shift CSR activities could have impacts on Company Earnings. We think that it is important to evaluate CSR activities from Earnings viewpoint.

   Company Value = EPS( Earning Per Share ) × Valuation( PER )

Relevant MaterialityX

(Source) Prepared by Mitsubishi UFJ Trust and Banking Corporation

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Our SRI Philosophy: Focusing on Factors Impacting EarningsOur SRI Philosophy: Focusing on Factors Impacting Earnings

Impact of Extra Financial Factors Extra Financial Factors on corporate earnings varyWe focus on materiality, those corporate social responsibility activities, which help grow corporate

earnings in the mid to long term.

We invest from a longer term viewpoint by focusing on such Extra Financial factors, in addition to the

purely financial outlook.

+非財務要素

弊社SRIファンド

=業績寄与度高い要素にフォーカス

“マテリアリティー”

Environment

SocialGovernance

+Extra Financial Factors

Financials

Our SRI Fund

Existing Investment Process

“Materiality”Large

Small

Impact on earnings

+非財務要素

弊社SRIファンド

=業績寄与度高い要素にフォーカス

“マテリアリティー”

Environment

SocialGovernance

+Extra Financial Factors

Financials

Our SRI Fund

Existing Investment Process

“Materiality”Large

Small

Impact on earnings

(Source) Prepared by Mitsubishi UFJ Trust and Banking Corporation

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CSR Evaluation ProcessCSR Evaluation Process

Evaluate the companies who are able to combine earnings growth with CSR.

Set important theme by focusing on longer term trend of social changes as macro environments of corporate activities

Evaluate the companies by focusing on Extra Financial Factors which have strong contribution to corporate earnings through various CSR activities.

Social Structure changes and

Social trends as macro environments

Determine themes which contribute

to corporate earnings growth

Extract Extra Financial Factor which

helps corporate earnings growth

(Source : Mitsubishi UFJ Research & Consulting Co., Ltd).

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Determination of Important Theme in CSR EvaluationDetermination of Important Theme in CSR Evaluation

Analyze macro environment trends

(Source : Mitsubishi UFJ Research & Consulting Co., Ltd).

Globalization of economy, Diversification of stakeholders, Society facing with a low birth rate, International cooperation on environmental issue, Rapid growth in developing countries, ・・・ .

   ( Reviewing properly considering social trends )

Importance of companies’ role from social problems point of view / Importance of social problems from companies point of view.

Determine themes and weightings

Importance of companies’ role from social problems point of view

Globalization of economy and society ○ ○Changes of commercial custom and rule ○ ○

・・・ ・・・ ・・・Society with a low birth & aging society ○ ○

・・・ ・・・ ・・・Child labor △ ×

Safety and relief ○ ○Diversification of product choice ○ ○

・・・ ○ ○Rapid growth in developing countries × △・・・ ○ ○

Activation of regional economies ・・・ ・・・Regional activities except economy △ ×

Methodical risk management ○ ○Support of art / culture △ ×

Proper information management / disclosure ○ ○Global peace × ×

○ ○○ ○○ ○

Consumer ・Customer

Others

Society

Global Social changes / Issues

EnvironmentExhaustion of natural resources and energy

Global environmental problemsPollution

Labor

Market

Regional / International Society ・

Importance of social problems from companies point of view

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Evaluating Method of the CSR Impacts to Corporate EarningsEvaluating Method of the CSR Impacts to Corporate Earnings

(Source : Mitsubishi UFJ Research & Consulting Co., Ltd).

Weight the impacts to corporate earnings by CSR activities from the following point of view.

- long / super long

   - direct / indirect

Evaluate the impacts to corporate earnings from the following point of view.

   - Revenue increase

   - Cost reduction Legend

Revenue increase

Cost reduction

Revenue increase effect

Reduction of revenue decrease

risk

Cost reduction

effect

Corporate earnings growth

Employees’ ability progress

Practical use of excellent talent

Consideration to employees’ home

・・・・

Activities to coexist & grow with regions

Participation in making int’l rules

Information release communication

Construction of risk mgmt. system

Correspondence to trouble on services /

products

Information offer of services / products

Consideration at product development

Prevention of sexual harassment

Productivity progress of employees

Super long/direct

Super long/indirect

long/direct

Long/indirect

Reduction of cost

increase risk

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Effectiveness of investment universeEffectiveness of investment universe

Financial characteristics of companies in the Investment Universe are generally favorable.

   Indexes which show profitability and efficiency of a company (ROE and ROA) and an index which presents long-term profit growth potential (growth rate of operating cash flow) of the companies in the Investment Universe generally surpass those of TOPIX.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2006 3年 月 2007 3年 月 2008 3年 月 2009 3年 月 2010 3年 月 5年平均

TOPIX投資ユニバー ス

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2006 3年 月 2007 3年 月 2008 3年 月 2009 3年 月 2010 3年 月 5年平均

TOPIX投資ユニハ ゙ー ス

- 4%

- 2%

0%

2%

4%

6%

8%

10%

12%

2006 3年 月 2007 3年 月 2008 3年 月 2009 3年 月 2010 3年 月 5年平均

TOPIX投資ユニハ ゙ー ス

<投資ユニバースとTOPIXの比較:2006年3月~2010年3月>

(出所)*QUICKより三菱UFJ信託銀行が作成。*各指標・数値は投資ユニバースまたはTOPIXに含まれる全銘柄を分析のうえ、算出したものです。

【ROE(自己資本利益率)】

【営業キャッシュフロー成長率】

【ROA(総資産利益率)】<Comparison between Investment Universe and TOPIX: between March 2006 and March 2010>

[ROE (Return on equity)] [ROA (Return on asset)]

[Growth rate of operating cash flow]

Investment Universe Investment Universe

Investment Universe

Mar. 2006 Mar. 2007 Mar. 2008 Mar. 2009 Mar. 2010 5 –year average Mar. 2006 Mar. 2007 Mar. 2008 Mar. 2009 Mar. 2010 5 –year average

Mar. 2006 Mar. 2007 Mar. 2008 Mar. 2009 Mar. 2010 5 –year average

N.B.: Each index and value are calculated from analyzing all brands included in Investment Universe or TOPIX.

Source: QUICK / Mitsubishi UFJ Trust and Banking Corporation

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DisclaimerDisclaimer

Any opinions expressed here reflect our judgement at this date and are subject to change.

The information contained in this material is for information purposes only and does not constitute an offer or a solicitation of an offer to buy a security.

The information contained in this document has been taken from sources which we deem reliable but we do not represent that such information is accurate or complete in part or in whole. If you rely on this document, you do so at your own risk.

You may not leak any personal data concerning our employees obtained through this document to your employees or any third party, or otherwise abuse such data. You must obtain our permission in writing before disclosing such data to a third party, and require any third party not to copy or duplicate it. When the original purpose for this data has been met, you must either return this data to us or destroy it.

This document may not be reproduced without the prior express consent of Mitsubishi UFJ Trust & Banking Corp.

Contact InformationContact Information

Masahiro Kato

Mitsubishi UFJ Trust and Banking Corporation

Investment Research and Planning Division

Tel : 81-(0)3-6214-7270 / Fax : 81-(0)3-6250-4071

E-mail : [email protected]