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					Responsible Investment and
Active Share Ownership
December 7th, 2006

Matt Christensen

  Eurosif and Responsible Investment

  Active Share Ownership
Eurosif Member Affiliates, 2006
Eurosif Activities

         Lobbying          Research           Initiatives         Events

2004     • Transparency    • Pension Fund     • Transparency    • EU Insider
           Directive         Toolkit            Guidelines

2005     • Corporate       • Sector Reports   • Pension Fund    • Briefing
           Governance                           Collaboration     Events

2006     • Cross Border      • Active Share   • Le Monde        • Eastern
           Voting Rights       Ownership        newspaper         Europe
                                                partnership       Summit
                             • SRI Study
Responsible Investment Market is Growing

Now represents as much as 10% of worldwide equity investing

                                         Global SRI Market

                                                      $3.6 trillion
$2.6 trillion                                                          1%



                                   84%                                       64%

                                               North America          2006
        Source: Eurosif research
Responsible Investment Evolution: Growth of ‘ESG’ as focus area

                             Integration:                               Integration
  Environmental              UK, NL, FR
  Social                Engagement Overlay:                             Engagement
  Governance                UK, NL, BE
                                                                        Best of class
   Social          Sustainable Development Funds :                      approach
   Environmental          France & Belgium
   Ethical         Environmental Funds :
            Germany, Northern Europe, Switzerland                       criterias

              Socially responsible funds :                              Screening and
             USA, Canada, UK, Switzerland,                              best of class
                   Northern Europe                                      approach

                        Ethical Funds :                                 Screening
                             USA                          Europe        criterias

      1928                                  1970   1980   1990   2006
 European Responsible Investment Strategies by Value
  Broad SRI is dominated by the Engagement and Integration strategies
€ bn

 Source: Eurosif SRI Study, 2006
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

  Eurosif and Responsible Investment

  Active Share Ownership
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
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
Common Activities of Active Share Owners


Dialogue with Management

External Communications

Shareholder Resolutions

Communication with Regulators

Collaboration and Coalitions
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

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
Why Active Share Ownership will Grow:
Legislation Demanding more Disclosure Related to ESG issues
European SRI disclosure regulations
The Swedish example

Highly developed culture of
social welfare
                                      “Investment activities shall take
Recent Pensions reforms in               environmental and ethical
place                               considerations into account without
AP Fonden offers member              lowering the overall objective of a
choice in DC/super type                         high return “
SRI principles seen as central to
strategy                               Swedish National Pension Funds
Recent activity of AP7 Fund in                         Government bill
human rights
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
  2. We will be active owners and incorporate ESG issues into our ownership policies and
  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
  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
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
Why Active Share Ownership will Grow:
High Returns Through Incorporation of ESG issues

  Sustainability Performance for the Long Term can Yield Excellent

    Calpers’ returns by asset class:      2004             2003
      • 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%
Contact Details

                     Matt Christensen
                     Executive Director
                   11 Avenue de l'Opera
                      75001 Paris FR
                  Main 33 (0) 1 40 20 43 38

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