Responsible Investment Lunch

Riding the long wave of sustainability

Presented by

Angus Dennis, Senior Investment Specialist, Sustainable Alpha and RIL

August 2009

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Leadership in Responsible Investment

AMP Capital is Australasia’s largest manager of

Responsible Investment Funds*

Significant resources including: RI fund managers,

researchers and investment specialist

Offer product choice to clients:

Sustainable Alpha Australian Shares ($1.7 bn)

Responsible Investment Leaders range ($700 million)

Range targets quality investment and social and

environmental outcomes

Future Directions Fund Team actively involved in manager

selection for RIL range

* RIAA Benchmarking Study as at June 2008, with total of $2.77 billion

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What is Responsible Investment?

Responsible Investment describes an investment process that

systematically takes environmental, social, and/or governance (ESG)

considerations into account

Elements of a responsible investment approach can include:

Favouring or avoiding companies or sectors on ESG grounds

Integrating ESG factors into company analysis

Thematic investment (eg clean energy)

Corporate engagement and shareholder activism

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Company Value

75% of the value of the typical Australian company is made up of intangibles.

Source: AMP Capital Sustainable Alpha Analysis, ASX Top 200 Companies. (Dec 2007)

• Employee and customer relationships• Brand and corporate reputation• Supply chains• Intellectual Property• Corporate Governance• Environmental and socially responsiblepractices

• Financials• Investments• Capital Assets

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Favouring leaders in sectors – banking study

Source: Innovest Strategic Advisors

Favouring the leading ESG rated companies (A rated etc) and avoiding worst (CCC)

Avoiding worst ranked stocks on underlying pillars – governance, environment, human capital & stakeholders

Banking sector provides useful case study

Responsible lending and links to sub-prime exposure

Remuneration & disclosure of banks

Investment banks ESG ranking pre-credit crunch: 1. Goldman Sachs; 2. Morgan Stanley, 3. Merrill Lynch, 4. Lehman Brothers, 5. Bear Stearns

Global Banking Sector ESG Ranking – Case Study

Innovest - Performance of Top Quartile IVA Rated Bank Stocks v Bottom Quartile Rated Global Bank Stocks

Period: May 2007 - January 2009

-20

0

20

40

60

80

100

120

5/07 7/2007 9/07 11/07 1/08 3/08 5/08 7/08 9/08 11/08 1/09

Top Quartile

Bottom Quartile

Difference

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Investing in Industries of the Future

EnvironmentalServices

Safety

WaterManagement

Qualityof Life

Health

SocialPropertyand Finance

CleanerEnergy

SustainableTransport

Efficiency

Knowledge

0

30

60

90

120

2000 2003 2005

Global Students Enrolled

Millions

Source: IFC 2007

Global higher education

1,643 stocks identified within themes Knowledge example of strong performing

theme Increase importance as world becomes

more knowledge intensive Individuals living longer & switching

occupation Held up well during down turn

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RIL International SharesRange of Responsible Investment Strategies

GrowthInvestment Style

Initial quant screeningbottom up stock picking & specialist knowledge

Core Financial Process

Focus industries of future strong growth aligned

with sustainability ESG Strategy

Henderson

Value

Global Currents apply value stock selection

& fundamental analysis

Grassroots assessment of companies together with social advocacy

Global Currents / Boston Common

In-House ESG Researchers

ESG Capability12 year partnership with

BC’s Social Research & Advocacy Team

30%Current Target Weighting 35%

Core

Quant strategy withkey factors incl value,

growth, quality

Breadth and depth of analysis 2,300 co’sfrom 65+ industries

Lazard / Innovest

Draw on Innovest 55ESG analysts worldwide

30%

Emerging Markets

Long term horizonwith focus on quality

management teams and absolute return focus

Positive screening investing in

sustainability innovators

Colonial First State

Emerging markets team have a focus on ESG and advisor “Ethix”

5%

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The role of Corporate Engagement

Should investors be targeting corporate engagement?

How should it be done, particularly in the case of multiple managers?

The aim is to protect and enhance shareholder value through: Reducing social and environmental risks for companies within the fund Target companies to benefit from social and environmental opportunities

Typically target companies held by the portfolio

Be aware of manager/ESG research house expertise and encourage company specific activity

Look to partner on offshore initiatives – letter writing, teleconferences, co-filing resolutions reinforced by investor coalitions, industry wide initiative building on leaders

How do we make sure it is relevant for our clients?

We draw on RIL Ethics Committee forum to draw out themes; interested in broader client input

How do we measure the results?

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Example: Supply Chain / Occ Health & Safety One theme – with multiple applications

Electronics industry targeted to support of Electronic Industry Code of Conduct; targets minimum standards across the electronics supply chain – focus on labour (working hours, child labour,...), health and safety; Boston Common - key partner

Used strategy to build on initial signatories at blue chip end (eg IBM), to provide example for broader sector, together with concerted communication by group investors

Through targeted engagement, succeeded in Sun Microsystems and Philips signing on to EICC

Investment outcome – protect brand from scandal, lower cost implementation, practical application across common factories and support of suppliers

Extended focus to auto sector after found bonded/unpaid labour in pig iron production in Brazil, with Toyota identified as one of recipients

Engaged with Toyota to join Automotive Industry Action Group, via investor coalition with letters, teleconferences; Toyota agreed to share standards with suppliers by Q3 ‘09

Investment outcome – Protect highly regarded brand built on hybrid leadership and build investor base

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Brand, sustainability and work practices

Support throughInvestment in safety& renewable energy

Brand Value

1999 2004 2005

Accident at Texas City refinery

Source: Interbrand

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Resolutions and New Frontiers

In Australia there is an Advisory Vote on executive remuneration – AMP Capital has voted against approximately 35% of proposals in last 2 years

In the US there is no equivalent, but there is scope for putting forward non-binding resolutions

Co-filed with Boston Common a proposal to Waddell and Reed Financial to allow shareholder vote annually on exec pay packages - 49.5% shareholder support in 2008

Looking to recognise the positive: worked with Henderson to be Australian participant in Access to Medicines Investor Statement – and ranking the world’s pharmaceutical companies on access to medicine in the developing world

The global financial crisis and sub-prime provides poses challenges, with Fannie Mae voted top corporate citizen in America between 2000 and 2004

Investigating global finance engagement initiative around responsible lending to underprivileged, with linked governance, remuneration and ethics issues with Innovest

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Applying ESG to Fixed Income - Assessment

State & Agency Corporate Asset BackedNational

Consider the ESG quality of differing security types

Debt Type

National Government

Quasi-Government

Corporate Securities

Asset-Backed

Proposed issues and assessment

• Within ESG assessment consider:• Environmental: country’s protection of atmosphere, water, land and biodiversity• Governance: Targeting well governed and non-corrupt countries• Social: Country catering for the education, health, welfare and social needs of inhabitants

• Also assess support of key international conventions

• Considerable “AAA” quality ESG opportunities including rail and reconstruction/development banks

• For corporate debt assessing risk is critical and ESG provides insights in line with RIL Charter:• Evaluating environment, workplace, social, community and governance issues • Can assess securities by industry, particularly concerns around high social impact sectors

• ESG assessment by AMPCI for Aus debt securities and global ESG research house for offshore credit securities

• Review both asset and issuer - can be problematic eg auto loans and credit cards

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ESG FI Performance – US Experience

“Causing the stir among US investors is how SRI fixed-income funds have out-performed traditional funds by four percentage points in the past 12 months. According to Cerulli, while traditional funds earned -6.3 per cent, their SRI equivalents earned -2 per cent.”

"In fact, socially conscious mutual funds have held their ground over the last ten years. SRI fixed-income funds outperformed other fixed-income mutual funds in five of the past ten years," said Pamela DeBolt, author of the Cerulli Quantitative Update: Retail Products and Strategies 2009.

24 April 2009Financial Standard

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Important noteNeither AMP Capital Investors Limited (ABN 59 001 777 591) (AFSL 232497), nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this presentation.

Past performance is not a reliable indicator of future performance.

While every care has been taken in the preparation of this document, AMP Capital Investors makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts.

This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

This document is solely for the use of the party to whom it is provided.