Transparency

1
Transparency Corruption A Shareholder View

• The Global Compact
• Policy Dialogue
• Karina Litvack
• ISIS Asset Management
• Ministry of Economy, Finances and Industry
• Paris
• 26-27 January, 2004

2
Outline

• Why are shareholders involved?
• Transparency, Corruption and Shareholder Value
• Why Equator Principles and EITI interest
  shareholders
• Equator Principles vs EITI
• Next steps how can investors contribute to their
  success?

3
Why Shareholders?

• ISIS Asset Management
• 90 billion Funds Under Management
• Global investor
• Long-term holdings Pensions Life Assurance
• 5 million individuals (retail clients and
  pensioners)
• Governance specialist shareholder dialogue
• Growing activism of investment community
• Governance scandals
• Slide in share prices
• Client and regulatory pressure to mind the
  store
• Engagement makes us better stock pickers
• As at 31.12.04

4
Transparency, Corruption Shareholder Value

• Why are shareholders involved?
• Not so long ago, we looked the other way
• The share price went up. Next question?
  (Bernie Ebbers)
• but then we got burnt
• Marconi, Enron, WorldCom, Parmalat et al
• Sarbanes-Oxley, UK Combined Code

5
Equator Principles interest shareholders
because...

• Doing nothing was not an option
• Default risk
• Consumers Citigroup the most destructive bank
  in the world Hollywood
• Shareholders
• Respected global banks .. are not answerable
  to the shareholders of their customers, but earn
  lucrative fees. They have been involved in many
  of the best-known corporate scandals, in America
  as well as Europe. Arguably, their very presence
  has helped to reassure investors and rating
  agencies. In future it should count for less.
• The Economist, 18 Dec 03

6
Equator Principles interest shareholders
because...

• On the plus side...
• It is an initiative by banks, for banks, with
  teeth
• Credibility association with recognised IFC
  standards
• Rapid take-up critical mass, de facto standard
• However They have teeth, and they are sharp,
  but will they bite?

7
Equator Principles

• Investors can help, before and after, through
• Stakeholder engagement
• Dialogue Citigroup, JP Morgan, Morgan Stanley...
• Benchmarking Study of Environmental Credit Risk
• Pre-launch consultation
• Dissemination and recruitment
• ...but focus on depth over breadth,
  implementation
• Engagement with bank customers

8
Equator Principles The Fault Lines

• Extension to other lending operations esp.
  underwriting
• Inconsistency between signatories on
• Interpretation of clauses and safeguards
• Project categorisation
• Monitoring
• Training and use of consultants
• Regional syndication markets vs. global standards
• Anti-competititve behaviour informality, yet
  pressure to formalise
• Export Credit Agenices big role in facilitating
  cross-border credits

9
Equator Principles

• Investors can help, before and after, through
• Stakeholder engagement
• Dialogue Citigroup, JP Morgan, Morgan Stanley...
• Benchmarking Study of Environmental Credit Risk
• Pre-launch consultation
• Dissemination and recruitment
• ...but focus on depth over breadth,
  implementation
• Engagement with bank customers

10
EITI

• Investors Statement on Transparency in the
  Extractives Sector
• 3 trillion, 38 institutions support EITI
• It is thanks to the active involvement of all
  parties, including both the businesses operating
  on the ground and the capital markets that fund
  them, that we will succeed in making the EITI
  achieve its goals. Better openness and
  accountability are essential to securing the
  stability and prosperity that the developing
  world needs, and on which our mutual business
  success depends Tony Blair
• This initiative is good for business, and it is
  good for shareholders Howard Carter, ISIS
• Investors can push openly where extractive
  companies cannot

11
Lessons Next Steps

• EP are driven by banks EITI is driven by
  somebody else
• EP have an institutional host
• IFC safeguard policies convenient, credible,
  dynamic
• EITI needs that role to be filled
• EP will force a realignment in lending practices
  effective conditionality
• That leverage is absent from EITI
• Financial leverage counts
• EP lenders hold the cards, within limits, through
  strong leadership and virtuous collusion
• Extractive companies lack this leverage

12
Important Notes

• Issued by ISIS Asset Management plc which is
  authorised and regulated by the Financial
  Services Authority (FSA). This document has been
  produced for information only and should not be
  construed as investment advice.
• Past performance is not necessarily a guide to
  future performance. Stock markets and currency
  movements may cause the value of investments and
  the income from them to fall as well as rise and
  investors may not get back the amount they
  originally invested.
• Where investments are made in emerging markets,
  unquoted securities or smaller companies, their
  potential volatility may increase the risk to the
  value of, and the income from, the investment.
• All sources ISIS Asset Management plc unless
  otherwise stated. www.isisam.com.
• ISIS Asset Management is registered in Scotland.
  The Registered Office is One Charlotte Square,
  Edinburgh, EH2 4DZ