United Nations Environment Programme

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United Nations Environment Programme Finance
Initiative Xavier Desmadryl Global
Head of SRI Research, HSBC Investments
Co-Chair, UNEP FI Asset Management Working Group
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• UNEP FI Asset Management Working Group
• A Strategic Alliance
• ABN AMRO Banco Real Brasil Hermes
  Pensions Management
• Acuity Investment Management HSBC
  Investments (Co-Chair)
• BNP Paribas Asset Management Insight
  Investment Management

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• AMWG Projects (2004 2006)
• Materiality 1 Freshfields
  Materiality 2

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AMWG Projects (2007) Private
Banking Pension Funds


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• AMWG Projects (2007) Coming Soon
• AMWG Institute for Responsible Investment,
  Boston College
• Handbook on Responsible Investment by Asset
  Class
• AMWG Mercer Investment Consulting
• Study on Responsible Investment Performance
  ESG Integration (Phase One)

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• AMWG Mercer Investment Consulting
• Study on Responsible Investment Performance
  ESG Integration (Phase One)

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• General Outline
• Introduction
• Large matrix of studies and template aspects
• Research
• About 20 academic and 10 broker/industry studies
• Conclusion
• Academic and broker/industry research connected
• Future Research Opportunities
• Emerging areas that could use some study,
  methodology concerns, practitioner interest
• Appendix
• Moskowitz Prize winners, link and description of
  Lloyd Kurtz www.srisstudies.org site,
• other notable responsible investment
  publications

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• Framework
• Full Academic Reference
• Author, year, title, publication, issue, volume,
  page numbers, URL
• Target Audience
• Broad Financial Performance Measures
• Corporate accounting, investment performance,
  index performance
• Specific Financial Performance Measures
• Sharpe ratio, share price, operating cost
• Broad ESG Measures
• Which combination of E-S-G issues is being
  tested?
• Specific ESG Measures
• Management diversity, greenhouse gas emissions,
  environmental management system

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• Framework
• Time Period of Study
• Unit of Measurement
• Company, sector, industry, investment fund,
  constructed portfolio, literature
• Number of Units
• 1 company or 40 companies? 3 investment funds or
  200 investment funds?
• Region/Market Geography
• US domestic, Europe, Asia? Large cap or small
  cap?
• Test
• What is the hypothesis being tested?
• Source of ESG Data
• Which research provider?

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• Framework
• Responsible Investment Approach
• Which RI approach is being tested? ESG
  integration, screening, engagement,
• proxy voting, etc.
• Results
• 3 general results RI has neutral, positive or
  negative impact on investment performance
• Summary
• Commentary
• Strengths weaknesses and relative importance
  of study
• Link to Other Articles

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• Examples Academic Studies
• SRI Viable for Value Investors? (Abramson
  Chung, 2000)
• Beyond Dichotomy The Curvilinear Relationship
  Between Social
• Responsibility Financial Performance
  (Barnett Salomon, 2006)
• Ethical Investing in Australia Is There a
  Financial Penalty? (Bauer, Otten Rad, 2006)
• SRI Portfolio Diversification (Bello, 2005)
• Do SRI Fund Managers Really Invest Differently?
  (Benson, Brailsford Humphrey, 2006)
• To Sin or Not to Sin? Now Thats the Question
  (Chong, Her Phillips, 2006)
• Does Weak Governance Cause Weak Stock Returns?
  An Examination of Firm
• Operating Performance Investors
  Expectations (Core, Guay Rusticus, 2006)
• The Eco-Efficiency Premium Puzzle (Derwall,
  Gunster, Bauer Koedijk, 2006)
• Investing in SRI Mutual Funds (Geczy, Stambaugh
  Levin, 2005)
• Corporate Governance Equity Prices (Gompers,
  Ishii Metrick, 2003)
• The Price of Sin The Effects of Social Norms
  on Markets (Hong Kacperczyk, 2006)
• The Impact of Excluding Tobacco Armaments
  Stocks from a UK Equity Porfolio
• (Mercer Investment Consulting, 2005)

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• Examples Academic Studies (continued)
• Corporate Social Financial Performance A
  Meta-Analysis
• (Orlitzky, Schmidt Rynes, 2003)
• The Performance of SRI Investment Funds
  Indices (Schröder, 2004)
• Is it Better to be Naughty or Nice? (Shank,
  Manullang Hill, 2005)
• SRI Mutual Funds (Statman, 2000)
• SRI Indexes Composition, Performance
  Tracking Error (Statman, 2006)
• Corporate Social Performance Stock Returns
  UK Evidence from Disaggregate
• Measures (Brammer, Brooks Pavelin, 2006)
• CSR Financial Performance (Van de Velde,
  Vermeir Corten, 2005)
• Investor Activism, Managerial Responsiveness
  Corporate Social Performance
• (David, Bloom Hillman, 2007)
• Do CSR Ratings Predict Corporate Social
  Performance? (Toffel, Chatterji Levine, 2007)

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• Examples Broker/Industry Studies
• Period 2006-07
• The Impact of CO2 Regulation on Oil Demand
  Alternative Plays (Bernstein Research)
• Bio-Fuel Challenges (Cheuvreux)
• Sustainability Compendium (Citigroup)
• Crossing the River (Citigroup)
• Global Energy Enhanced Energy ESG Framework
  (Goldman Sachs)
• Food Beverage (Goldman Sachs)
• Global Mining Steel Integrating ESG (Goldman
  Sachs)
• The Business of Climate Change Challenges
  Opportunities (Lehman Brothers)
• Global Agriculture (Merrill Lynch)
• Nanotechnologies There are Still Plenty of
  Opportunities Uncertainties
• at the Bottom (Oddo Securities)
• Alternative Alpha Infrastructure (UBS)
• What Really Counts The Materiality of Extra
  Financial Factors (West LB)

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• 2007 Timeline
• Soft Launch Methodology Plan
• TBLI Conference Asia (May, Bangkok)
• PRI Annual Event (July, Geneva)
• Official Launch Panel Discussion
• UNEP FI Global Roundtable (24-25 October,
  Melbourne)

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• Phase Two (2008)
• Mapping of ESG Criteria by Sector
• Impact of ESG Criteria in Valuation Models

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• NCIPLE ONE
• 1 We will incorporate ESG issues into
  investment analysis and decision-making
  processes.

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United Nations Environment Programme Finance
Initiative Asset Management Working Group
Mercer Investment Consulting www.unepfi.org

www.merceric.com/ri investment_at_unepfi.org
responsible.investment_at_mercer.com