Socially Responsible Investing (SRI) and TRI

Presented by: Paul A. Hilton,

Director, Advanced Equities Research

Date: February 12, 2008

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Original Definition:

Investing with your values

Evolving Definition:

Integrating analysis of social, environmental, and governance criteria with traditional financial analysis

What is SRI?

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Growth in SRI

$639

$1,185

$2,159$2,323

$2,164$2,290

1995 1997 1999 2001 2003 2005

US Socially Screened

Mutual Funds

1995 55

2005 201

Source: “2005 Report on Socially Responsible Investing Trends in the United States”, Social Investment Forum, 2006.

US SRI Assets Under Professional Management (in USD billions)

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Interest in SRI

54% of those not in SRI funds would now be interested in one, up from 40% in 1999.

Nearly 9/10 (87%) would consider if they knew the rate of return was the same.

29% have investments in SRI funds, up from 25% in 2002.

Investors seek companies that:– Operate with higher levels of integrity (30%)– Do not harm the environment (26%)– Are not involved in sweatshop labor (15%)

*“Attitudes Toward Socially Responsible Investing,” Yankelovich Study, conducted on behalf of Calvert, January 2006.

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ESG and the Bottom-Line

Proactive management of ESG can influence financial performance:

Brand value/ customer loyalty/ reputation

Compliance posture

Cost structure

Insurance (property & casualty, D & O)

Ability to attract and retain employees

Right to operate (e.g.: community allowing expansion of plant)

Major public pension funds are taking notice: CalPERS, State of New York, and Connecticut have pledged to incorporate ESG factors into investments as part of the United Nation’s Principles of Responsible Investments (PRI).

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Academic Research Suggests Link with Performance

* The Journal of Investing, Fall 2005, “Answers to Four Questions,” Lloyd Kurtz, p. 125-139.

A review of academic studies in The Journal of Investing shows there is no performance cost to SRI on a risk adjusted basis*

ESG factors may in fact show a positive connection with financial metrics and/or stock price

Environment

Workplace

Corporate Governance

Reviews major studies including “Moskowitz Prize” winners, an annual industry award for the best academic study on SRI

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ESG and the Bottom-Line

Major Wall Street Firms, such as Citigroup, Goldman Sachs, and UBS, are Producing Research on ESG and Materiality as part of the Enhanced Analytics Initiative (EAI).

Research Provider

Title Date Region

Citigroup Solar Energy: Rise of a New Power Generation

June 2006 Europe

Goldman Sachs Introducing GS Sustain

June 2007 Multi-Region

Lehman Brothers

The Business of Climate Change I and II

February, September 2007

Global

UBS Alternative Alpha: Land – The Long View

July 2006 Multi-Region

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Need for Comparable Data

Most environmental ratings based in part on environmental performance metrics.

Companies are providing more data through voluntary reporting: GRI Reports

Need more verified third party data.

Few vendors specializing in processing government data.

Wish list: shorter lag-time, company level data, forward-looking data, toxicity weightings, international data, peer to peer comparisons.

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