Are labourrelations an investor issue?

BC Federation of LabourPension Forum

December 1, 2005

Robert WalkerVice President, Sustainability

Are labour relations an investor issue?

Yes…

…for “socially responsible investors”…

…and maybe, in future, for the “mainstream”

Order of Presentation

Socially responsible investors

“Legitimacy explosion”

Sustainable Investing Program

What would you do? Labour relations and investor action

Socially responsible investors (SRI)

Socially responsible investment (SRI) …

is the integration of environmental, social and governance (ESG) factors into the investment process

has ancient roots in faith-based investors’refusal to invest in specific industries

has developed sophisticated methodologies to measure ESG performance

Increasingly makes use of the rights of share-ownership to encourage improved ESG performance

SRI around the world

Sources: SIF 2003, UK Social Investment Forum, Assirt , SIO 2004

US UK

AustraliaCanada

$2.16 trillion USD11.3% of market

$403 billion USD11% of market

$14.3 billion USD3.2% of market

$65.5 billion CDN3.5% of market

$15 billion retail

Labour standards and SRI

1. Tobacco $124 billion2. Alcohol $94.3 billion3. Labour relations $31.1 billion4. Environment $28.9 billion5. Gambling $28.8 billion

• Source: Social Investment Forum Trends Report, 2003; www.socialinvest.org

• Total SRI mutual funds assets: $151 billion

• All figures in US dollars

Most Popular SRI Mutual Fund Screens

Evaluation methodologies include

Health and safety management systems

Health and safety performance numbers

Absenteeism, turnover, training

History of labour relations

Use of ILO codes and conventions

ILO Code of Practice on Recording and Notification of Occupational Accidents and Diseases

ILO Guidelines for Occupational Health Management Systems

ILO Fundamental Principles and Rights at Work

The Legitimacy Explosion

It came…from Europe…

July 2000 – UK Pensions Disclosure Regulation: “the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments”

- Belgium, France, Germany, Australia have followed

…fund managers

Mercer Investment Consulting

Recent Fearless Forecast surveyed 220+ investment managers worldwide and asked them to predict in which time frame active ownership, screening, and the integration ESG analysis “will become a common component of mainstream investing?”

…fund managers

Positive or negative screening for social and/orenvironmental factors

26%

35%

10%

29% Over next 1-2 years

Over next 3-5 years

Over next 6-10 years

Never

Source: 2005 Fearless Forecast , ©2005 Mercer Human Resource Consulting LLC and Mercer Investment Consulting, Inc.

…fund managers

Mercer Investment Consulting has begun to evaluate fund managers on the basis of how well they incorporate ESG factors into investment analysis, including proxy votes and engagement procedures

…analysts

Enhanced Analytics Initiative– Consortium of asset managers

– Believe that ESG factors are important value drivers (“extra-financials,” “intangibles”)

– 5% of research budgets goes to broker research houses to develop ESG analytics

Winners announced June 2005– Deutsche Bank, Morgan Stanley, Goldman Sachs,

West LB, DrKW, UBS, HSBC

www.enhanced-analytics.com

…analysts

“The Materiality of ESG Issues to Equity Pricing”– “Environmental, social, and governance issues

affect long term shareholder value. In some cases those effects are profound.”

– “The majority of analysts noted difficulties in comparative analysis due to the range of reporting practices…”

UNEP FI, 11 Sector Studies by Brokerage House Analysts

…fiduciary duty

Freshfields, Bruckhaus, Deringer:

"...integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions…”

“A Legal Framework for the Integration of ESG Issues into Institutional Investment”, October 2005

www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf

…Cowan vs Scargill

“… has been distorted by commentators over time to support the view that it is unlawful for pension fund trustees to do anything but seek to maximise profits for their beneficiaries.”

“…the case’s practical relevance today is questionable.”

“Fiduciary duties evolve over time according to changes in social norms…”

Key distinction

Fiduciary duty owed to the wallet?

or

Fiduciary duty owed to the whole person?

Sustainable Investing Program

Our Core Values

Respect for the Environment

Respect for Stakeholders

Respect for Human Rights

Corporate Sustainability Scorecard

Overview

Step 1 Step 3Step 2 Step 4

Step 3: How we categorize companies

Scorecard grades fall into five categories:

We work to improve a company’s grade

Scorecard tells us …

Which companies we can invest in

Which companies we will exclude

Which companies we engage to make them better corporate citizens

Corporate Sustainability Scorecard

Shareholder Action Program

Shareholder Action Program

Shareholder Action

Use the rights of share-ownership to engage management and directors

Enter into structured dialogue

Alert companies to ESG challenges and present solutions

Ensure that companies maximize long term value creation

2006 Focus List Themes

Seven themes1. Climate Change

2. Biodiversity

3. Environmental Justice

4. Food Safety and GMOs

5. Promotion & Protection of Human Rights

6. The War on AIDS

7. Executive Compensation & Sustainability

Identifying Themes

• Canadian values

• Sustainability expert opinion

• Materiality

• Partnership opportunities

• Scorecard results

Shareholder Action Program: Overview

Objectives:

•Highlight concerns

•Improve policy

•Action plans

•Improve performance

Promotion & Protection of Human Rights

Objective

Establish a human rights policy and supporting management system

Companies

Alcan Barrick Gold

Canadian Natural Resources

Falconbridge Husky Energy

Power Corp Wal-Mart

Objective

Adopt & disclose supplier code of conduct, compliance mechanisms, audit

Companies

Dell Intel

BCE IBM

The War on AIDS

Objective

Adoption of formal HIV/AIDS policies and program

Companies

Barrick Gold

Canadian Natural Resources

Falconbridge Potash

Objective

Create sustainable, affordable access to HIV/AIDS medications in the developing world

Companies

Eli Lilly Novartis Pfizer

GlaxoSmithKline Roche

Johnson & Johnson

Schering-Plough

Executive Compensation & Sustainability

Objective

Adopt sustainability criteria as part of executive compensation packages

Companies

Broadcast Campaign to TSX/S&P Composite

Time Warner

What would you do?

Domestic labour issues

Telus

Letter to Board of Directors asking for terms of reference for human resources committee to be strengthened

Report to shareholders on efforts to repair relations with the union

Domestic labour issues

Wal-Mart

Sustainability resolution

Supply chain compliance dialogue

National Contact Point review

Discussion