3iG International Interfaith Investment Group

3iGInternational Interfaith Investment Group

TBLI Faith Consistent Investment Seminar

New investments for the Faiths: opportunities or sources of conflict?

Mark Campanale, 3iG, Member of Advisory BoardThursday 9 November 2006


• Approaches to SRI

• Growth across Europe

• Mission/faith consistent investment

• Investing in social value creation

Wide range of SRI providers and approaches

Sustainable and responsible investment (SRI)

• Europe characterised by four concurrent SRI agendas:– Negative screening

– Thematic investing, characterised by investments in businesses with direct social or environmental benefit

– Shareholder accountability strategies,

– CSR/sustainability/enhanced analytics analysis – the business case

• Institutional investors typically focus on ‘the business case’ or engagement strategies

Grappling with different agendas


European SRI retail market: number of SRI funds

4

54

159

313

354375

280

20

0

50

100

150

200

250

300

350

400

450

1980-1984 1985-1989 1990-1994 1995-1999 2000-2001 2002-2003 2003-2004 2004-2005

Source: Avanzi SRI Research / SiRi Company (2005)

From the period of 1980-2005 (as of 30 June 2005)


Total European SRI funds under management

11.074

14.485

12.15

24.127

19.034

0

5

10

15

20

25

30

Dec 1999 Dec 2001 Jun 2003 Jun 2004 Jun 2005

Source: Avanzi SRI Research / SiRi Company (2005)Note: The total amount of SRI assets grow by about 27%, from €19bn at mid 2004 to €24.1bn at the end of Q2 2005

SRI assets grow by 27% from 2004 - 2005

€ Billion


Cas

h

Pub

lic E

quit

y

Fixe

d In

com

e

Cas

h

Pri

vate

Equ

ity

Gu

aran

tees

Sen

ior

Loan

s

Sub

ordi

nate

d Lo

ans

Gra

nt S

uppo

rt

Market-Rate Investments

Below-Market Investments

Equ

ity

“Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes? ”

Luther Ragin

Mission related investment continuumThe F.B Heron Foundation – lessons

Source: FB Heron Foundation,Skoll.EVPA/ACF Seminar 8th September 2005


P

ublic

E

quity

Market-Rate Investments

Below-Market Investments

Long history of “socially-screened” stock investments and proxy activity: - Avoiding the bad

- Investing in the good- Turning the bad into the good

Mission related investment continuumHow tight is the fit with values or mission?


Which investments can align with values?MSCI World Index: mega corporations dominate index

Source: FactSet Pirce/Henderson Global Investor, data as at 8 March 06

Top 10 US traded companies from the MSCI World Index

Exxon Mobil Corp. 2.7

General Electric Co. 2.6

Microsoft Corp. 2.1

Citigroup Inc. 1.7

Bank of America Corp. 1.5

Procter & Gamble Co. 1.4

Pfizer Inc. 1.4

Wal-Mart Stores Inc. 1.4

Johnson & Johnson 1.3

American International Group Inc. 1.3


Which investments can align with values?MSCI World Index: mega corporations dominate index

Source: FactSet Pirce/Henderson Global Investor, data as at 8 March 06

Top 10 European traded companies from MSCI World Index

BP PLC 2.6

Royal Dutch Shell PLC (A & B Shares) 2.4

HSBC Holdings PLC 2.2

Total S.A. 1.8

GlaxoSmithKline PLC 1.7

Novartis AG 1.7

Vodafone Group PLC 1.5

Sanofi-Aventis S.A. 1.3

Nestle S.A. 1.3

ENI S.p.A. 1.3


Which investments can align with values?

0

10

20

30

40

50

60

70

80

90

100

FTSE 10082.4% Mining – 5.6%

Pharma – 7.6%

Oil & Gas – 15.9%

Banks – 16.6%

FTSE All Share: top ten stocks dominate UK index

Source: FactSet Pirce/Henderson Global Investor, data as at 11 Jan 06

Top 10 UK Companies equal 41.7% of total

BP £133.4bn

Royal Dutch Shell £126.7bn

HSBC £107.7bn

GlaxoSmithKline £86.4bn

Vodafone £81.9bn

Royal Bank of Scotland £57.8bn

AstraZeneca £46.1bn

Barclays £40.7bn

HBOS £37.0bn

Anglo American £30.5bnRest of – 17.6%Index


Equities-based faith consistent investment

• An equities portfolio can be an extension of mission • Its what companies <do> that counts• Foundations have different areas of focus

– Alignment can be around a social benefit agenda e.g health & education

– Can also focus on poverty alleviation e.g access to finance or suitable housing

– Or a broad sustainability agenda

• Some Foundations have focused on one sector, e.g healthcare technology or cleantech

• Foundation’s traditional investments are diversified, so an MRI strategy ought to be diversified

Knowing where to look on stock markets


Mainstream classification methodology

Researchers focused on total universe of 50,000+ and sought companies in specific mission aligned sectors

4,765 stocks in our mission aligned universe have a total market cap of US $4.7 trillion

Researching companies aligned with values

Source: Henderson Global InvestorsNote: As at 31 December 2005


Industriesof theFuture

Health

Knowledge

Quality of LifeSafety

Social Property & Finance

SustainableTransport

Environmental Services

EfficiencyCleanerEnergy

Water Management

Mission or values as an investment theme4,765 stocks in 10 mission aligned themes


• Cleaner Energy Sources of energy that combat the effects of global warming, increase the use of renewable energy and help pave the way to a hydrogen economy

• Efficiency Products and processes that reduce energy consumption, make more efficient use of resources and increase efficiency in business

• Environmental Goods and services that improve the quality of the environment and reduce pollution Services and waste

• Health Goods and services that help people live longer, healthier lives• Knowledge Supplying educational goods and services that enhance quality of life and improve

opportunities for full-time students and those in employment• Quality of Life Goods and services that promote sustainable lifestyles among all age groups,

including children and the elderly• Safety Minimising the risk of safety incidents at work, at home and in the community • Social Property Providing property for social benefit, access to housing, regeneration, and better &

and Finance wider access to financial services • Sustainable Transport Shifting to less polluting forms of transport, and cleaner transport technologies. • Water Management Managing and conserving water, and minimising pollution

Ten Investment ThemesInvestment opportunity in a sustainable world


Cleaner energy – stock example

• Unique process for manufacturing solar cells

• Process requires up to 50% less silicon in manufacture than existing methods

• Undertook joint venture with QCells in Germany to prove manufacturing process

Evergreen Solar Inc.31 December 2002 to 31 December 2005

Evergreen Solar (US)

3.0

103.0

203.0

303.0

403.0

503.0

603.0

703.0

803.0

903.0

1003.0

De

c-0

2

Ma

r-0

3

Jun

-03

Se

p-0

3

De

c-0

3

Ma

r-0

4

Jun

-04

Se

p-0

4

De

c-0

4

Ma

r-0

5

Jun

-05

Se

p-0

5

De

c-0

5

Price Close ($)

MSCI World

Source: FactSet Pirce/Henderson Global Investor data as at 31 Dec 05


Healthcare - stock example

• Supplier of hearing aid products and services, selling over 500,000 in 2004

• Amplifon is well-positioned to benefit from ageing populations, growing noise pollution and the application of digital technologies

Amplifon31 December 2002 to 31 December 2005

Amplifon (Italy)

0

50

100

150

200

250

300

350

400

De

c-0

2

Ma

r-0

3

Jun

-03

Se

p-0

3

De

c-0

3

Ma

r-0

4

Jun

-04

Se

p-0

4

De

c-0

4

Ma

r-0

5

Jun

-05

Se

p-0

5

De

c-0

5

Amplifon (Italy)

MSCI World



Social finance - stock example

• Provides free impartial advice and appropriate debt management solutions to individuals with debt problems

• IVA’s are an alternative to bankruptcy, enabling debtors to repay a proportion of their debts whilst avoiding potential financial exclusion

Debt Free Direct plc

0

100

200

300

400

500

600

700

De

c-0

2

Ma

r-0

3

Jun

-03

Se

p-0

3

De

c-0

3

Ma

r-0

4

Jun

-04

Se

p-0

4

De

c-0

4

Ma

r-0

5

Jun

-05

Se

p-0

5

De

c-0

5

Debt Free DirectFTSE All Share

Debt Free Direct31 December 2002 to 31 December 2005



Quality of Life - stock example

• Child care is a growth market in Australia and ABC Learning provides 644 centres

• ABC Learning provides day care for children between six weeks and five years old

• From 1999 and 2002, children using child care increased by 27% to 732,100. By 2004 this figure had risen to 752,800.

ABC Learning Centres (Australia)

0

50

100

150

200

250

300

350

400

De

c-0

2

Ma

r-0

3

Jun

-03

Se

p-0

3

De

c-0

3

Ma

r-0

4

Jun

-04

Se

p-0

4

De

c-0

4

Ma

r-0

5

Jun

-05

Se

p-0

5

De

c-0

5

ABC Learning

MSCI World

ABC Learning31 December 2002 to 31 December 2005



Performance and risk

• Investment portfolio in the educational, healthcare, social housing or environmental sectors can be aligned with social value creation

• Investment risk has to be carefully managed – Business profitability-test – do these businesses make money?

– Valuations relative to the stock market (typically p/e) – buy or leave alone?

– Sector relative valuation – is it expensive compared to other businesses?

• Social investing is still investing…. it is not philanthropic works, even though it is more closely aligned.

Aligning with values generates new investment ideas


Appendices

Note: FactSet Pirce in USD /Henderson Global Investor Data as at 31 December 2005

Back tested performance of the 10 themesMarket Cap Weighted Median vs MSCI World Index

1 year 2 year 3 year 4 year 5 year 6 year

MSCI World Index 10.0 26.8 69.6 36.5 13.9 -0.8

Cleaner Energy 8.0 32.7 59.8 69.3 59 59.7

Efficiency 19.4 41.6 126.5 79.9 42.8 30.2

Environmental Services 16.1 34.7 88.2 139.6 187.2 201.9

Health 15.9 37.6 92.8 52.2 45.0 115.4

Knowledge -2.2 12.0 46.9 15.7 -11.2 -13.6

Quality of Life 18.0 60.0 115.6 69.7 66.1 29.9

Safety 14.1 27.5 52.4 4.1 0.72 -24.2

Social Property & Finance 7.7 37.4 115.5 106.9 127.6 139.3

Sustainable Transport 19.7 35.1 90.0 61.2 55.5 52.9

Water Management 18.1 56.8 81.8 45.4 31.1 76.6

Total Number of Stocks 4765 4558 4344 4087 3791 3326

Total Weighted Median 12.2 33.5 90.0 59.6 43.4 56.6


When SRI funds performTop eco-funds posted average one year return of 39 percent

Fund Name Management Company Country 1 year return*

Performance Environnement Financiere de Champlain France 50.9%

Nikko Eco Fund Nikko Asset Mgmt Japan 44.1

New Energy Fund Sarasin Investmentfonds Luxembourg 41.2

Impax Environmental Markets Fund Impax Asset Mgmt Ireland 40.1

Winslow Green Growth Winslow Mgmt USA 38.6

Altshuler Shaham Green Altshuler Shaham Mutual Funds Israel 36.1

Sompo Japan Green Open Sompon Japan Asset Mgmt Japan 35.9

Global Trend New PowerTech Vontobel Fund Advisory Luxembourg 33.9

Activest EcoTech Activest Investmentgesellschaft Luxembourg 32.7

Jupiter Ecology Fund Jupiter Asset Management UK 32.2

* For the 12 months ended on May 31. Includes assets of at least $50 million. Returns calcuclated in US dollars. Source: Bloomberg


FTSE All Share Market

Top 5 FTSE All Share sectors over 1 year

Mining 82.1%

Industrial Metals 75.6%

General Industrials 58.0%

General Financial 55.9%

Chemicals 48.9%

FTSE All Share 21.3%

Source: Datastream (total returns) to end May 2006

Bottom 5 FTSE All Share sectors over 1 year

Healthcare equipment & services -11.4%

Leisure Goods -6.8%

Food Producers 1.7%

Telecoms 3.1%

Software & Computer Services 4.4%


Top 5 FTSE All Share sectors over 3 years

Industrial Metals 400.8%

Mining 200.4%

Aerospace & Defence 149.2%

Real Estate 145.0%

Construction & Materials 127.3%


Bottom 5 FTSE All Share sectors over 3 years

Leisure Goods 10.8%

Telecoms 23.8%

Non-life Insurance 26.3%

Food Producers 30.3%

Software & Computer Services 32.3%


When SRI doesn’t perform


Source: Capital Bridge, as at 29 June 2006

Worlds largest SRI ManagersAsset managers % of total business

Firm Total Equity Owned Sm SRI Funds $m % SRI

Ariel Capital Management, LLC 17,4115 7,672.6 44.1

TIAA-CREF Investment Management, Inc. 1668,812.4 5,030.8 3.0

F&C Asset Management PLC 46,915.1 2,031.3 4.3

State Street Global Advisors 465,994.9 1,870.8 0.4

Henderson Global Investors 34,174.1 1,580.6 4.6

Daiwa Asset Management Company Ltd 19,269.9 1,487.6 7.7

Pax World Management 1,445.5 1,346.0 93.1

Atlanta Capital Management Ltd 5,693.8 1,252.2 22.0

Dexia Asset Management Belgium 13,260.0 1,200.6 9.1

Delaware Investment Advisors 40,707.3 1,144.0 2.8

Parnassus Investment. 1,076 1,076.5 97.5

Capital Guardian Trust Limited 152,039.8 903.7 0.6

Bridgeway Capital Management Ltd 3,814.7 862.4 22.6

Hunter Hall Investment Management 1,042.5 841.4 80.7

The Drefus Corporation 40,774.2 779.8 1.9


0 10 20 30 40 50 60 70 80 90 100

Religious concerns

Exclusively invest in sustainable solutions

Maximise returns

Social Concerns

Opportunity to invest in Cos with greater corporate responsible

Environmental concerns

To persuade greater social responsibility

1 or 2

3

4 or 5

Ethical Investor Analysis - motivation

Base: Variable base for each factor (average across all = 1,414)

• Respondents concerned about returns, but not overly• Shareholder advocacy is of greatest importance

Importance of factors influencing investment in Henderson Ethical Fund

Reasons for Investing

Top 20 Respondent Concerns for the Future

Area of Concern Number of Mentions % Total Mentions

Genetic Engineering/cloning/GM 216 9

Water 171 7

Wealth Distribution 126 5

Global Warming/Climate Change 118 5

Human Rights 116 5

Fairtrade 103 4

Non-Renewable Energy Sources 92 4

Terrorism/Security 89 4

America 88 4

Total number of mentions 2,479 100

Ethical Investors – their views on the future

• Many of the issues revolved around the developing world

Respondents were asked to state which issues are likely to give rise to social dilemmas in the 21st century

Advisory Council Member, 3iG

Education: York UniversityBA (Hons) Politics and Economic History

Wye Agricultural College, London UniversityMSc Agricultural Economics

Career:

1985 Environmental ConsultantEC, ERM, World Vision, Band Aid/Live Aid

1989 Jupiter Asset ManagementSRI Investment Analyst

1994 NPI Asset Management LtdSRI Investment Analyst

1996 NPI Asset Management LtdSRI Investment Marketing Manager

Mark Campanale

1999 Henderson Global InvestorsSRI Investment Marketing Manager

2001-2006 Henderson Global InvestorsAssociate Director of SRI Business

Development

Contact: [email protected]

Documents

3iG International Interfaith Investment Group