Labour Issues in the Investment Strategy of Socially Responsible

Investment (SRI)

David St. Maur SheilDirector, ASrIA

CSR for SustainabilityTaipei, December 2004

Introducing ASrIA

Not-for-profit membership association1

100+ members in first year – global

and local

Research – issues and opportunities

Awareness raising –website, media

Conferences, workshops, seminars

1 Sister organisation to UKSIF and US SIF

ASrIA PUBLICATIONS

• Raising the Labour Question: Contrasting business, investor, regulatory and activist perspective

• A pragmatic and comprehensive overview of the issues and complexities involved in assessing labour standards when making investments in China

What is SRIInvestor response to sustainable development

Investment that balances financial, social and environmental criteria

Enabling investors to invest in line with their values

Investment that takes a long-term perspective

A risk management tool

A framework and methodology

SRI IS A MAJOR INVESTMENT SECTOR

"One out of every eight dollars under professional management in the United

States today is part of a socially responsible portfolio.”

US SIF Trends Report 1999

Common SRI Criteria

Energy

Water Use

Air Pollution

Wastes & Toxics

Transport

ISO 14000

Resource Productivity

Biodiversity

Product Impact

EnvironmentProfit Sharing

Welfare at Work

Equal Opportunities

Civil/Employee Actions

Community & Public Policy

Supply Chain

Public Disclosure

SocialMilitary

Gambling

Pornography

Alcohol

Tobacco

Repressive Regimes

Genetic Engineering

Nuclear

Animal Testing

Ethical

• Founding Member of ASrIA

• Calvert has been in the mutual fund business for 25 years and manages approximately US$ 9.7 billion in assets in 28 screened and non-screened portfolios for over 330,000 shareholders.

Investment Methodology• a successful investment is one that not

only earns competitive returns but also helps to build a sustainable future and enhance quality of life.

• Calvert's social research analysts help identify companies with strong management and solid long-term prospects. The analysts' chief criteria are how these companies treat the environment, their employees, their communities and the safety of their products. If a company fails to meet any of Calvert's basic social criteria, it is ineligible for investment. If a company satisfies the Fund's criteria but demonstrates room for improvement, we may invest in it and raise our concerns in a dialogue with company management.

Calvert Corp Website:http://www.calvert.com/sri.html

Social Investment Criteria

• Companies eligible for Calvert portfolios provide safe and healthy work environments and promote the healthy development of all employees.

• We do not invest in companies that show a pattern of violating: fair labor practices; occupational safety and health regulations; and equal opportunity standards concerning pay, promotion and tenure with regard to religion, gender, age, sexual orientation, HIV/AIDS status, physical and mental ability, color, ethnicity, or national origin.We also reject companies that are the subject of serious labor-related actions by federal, state, and local regulatory agencies.

• We favor companies that:

• Actively hire and promote minorities and women. • Compensate their workers fairly. • Strive to achieve and maintain good labor-management

relations. • Provide programs and benefits that support workers and

their families. • Provide a safe and healthy workplace. Calvert Corp Website:

http://www.calvert.com/sri.html

SCMP

SCMP

ELMS INDUSTRIAL, SINGAPOREA material management company specializing in the treatment,

processing and recycling of electronic scrap, ranging from components to used IC trays.

When you work with Elms, you know you are making a choice to play a part in supporting a greener environment. This means conserving energy, efficient allocation of resources, reducing pollution, reducing waste, safeguarding individuals, communities, societies and the earth.

Can you guess where?

Here’s a Chinese electroplating facility

How is SRI practiced?

• Screening

• Voting and Advocacy

• Engagement

• Conditions on Loans

• Community Investment

Who Practices SRI?• Individual investors (Green funds, SRI funds)

• Church, Charitable and Caring Groups (Ethical funds)

• Pension Funds

• Insurance Companies

• Private Equity Investors

• Banks, Development Banks, and Multilateral Lending Organisations

• Micro-finance and Community Investment Agencies

Examples of Asian SRI Fund Investors

• Many first time investors

• High proportion of women

Nikko Eco-Fund Unifem-UOB Fund

• 75% first time investors

• 75% women• 75% blue collar

workers – i.e. not high income bracket

Investors’ Interests – Japan, UK, USA

Comparison of Individual Investors' Interests -Ministry of the Environment Survey 2003

0 10 20 30 40 50 60 70 80

Others

Prevention of child labour

Contribution to community

Equal opportunity

Stability of employment

Occupational health and safety

Labour/management relations

Prevention of corruption

Environmental issues

Consumer health and safety

Japan USA UK

Survey of Financial Professionals Interest in SRI – Taiwan

Among the following examples of social and environmental policy in companies, which are the ones that you will consider when selecting investments?

25.4

84.9

60.5

44.9

38.9

33.0

30.3

0 10 20 30 40 50 60 70 80 90 100

%

Respect for human rights

Good corporate governance

Environmental policy

Quality of consumer relations

Employee relations

Work conditions and atmosphere

Training policy

Examples

Socially Responsible Investing in Taiwan: A Summary ReportShih-Mo Lin, Xiu-Juan Li, and Jing-Shi Lin

Global Growth in SRI Funds

$0

$500

$1,000

$1,500

$2,000

$2,500

1995 1997 1999 2001

U.S.

US$ BN

192 Funds

67 Funds

$0$1,000

$2,000

$3,000

$4,000

$5,000$6,000

1995 1997 1999 2001

U.K.

US$ MM

Source: UBS Warburg - 1999 US Trends Report, USSIF, EIRIS1 U.K. Retail volume only. Does not include institutional, predicted to be approx. GBP120 billion end 2001

U.S.

U.K.1 49% CAGR

22% CAGR

Global Growth of SRI

• Europe : core SRI 34 billion Euros (USD 42 billion)• Wide view of SRI – (practice some screening and engagement) • 334 billion Euros (USD414 billion)

• Australia: 74 funds, and some USD 8.0 billion Sept 2002• SRI funds registered over 700% growth since 1996

• Japan: 11 SRI fund• 1st Nikko eco-fund – attracted USD1 billion in first six months,• mostly first time investors, and women

• Asia, ex Japan/Australia, 18 other SRI funds registered in:• Hong Kong, Taiwan, Singapore, Korea, Malaysia and India

SRI Fund Providers in Asia Today

Korea• Samsung Group

Malaysia• Maybank Mgt Bhd.• 34 Islamic Funds

Indonesia• Several Islamic Funds

Singapore• AMP Hendersons• Morley FM• UOB Asset Mgt• 2 Islamic Fund Providers

Taiwan• UBS Global Asset Mgt.

India• JM Heritage Fund • Inheritance India

Australia 74 funds, incl.• AMP Group• ANA Friendly Society• Australian Ethical• BNP Paribas• Challenger Group• Equity Trustees• Glebe • Hunter Hall• ING Funds • IOOF• Warrakiri Asset Mgmt• Westpac Investment Mgmt

Japan 11 funds incl.• Asahi Life Asset Mgmt• Daiwa Asset Mgmt• Mitsui Marine Asset Mgmt• Nikko Asset Mgmt• UBS Global Asset Mgmt• UFJ Partners Asset Mgmt• Yasuda Asset MgmtHong Kong• Kingsway Fund Mgt.• Henderson Global Inv.• Friends Provident• ABN Amro• ING Invest. Mgt.• UBS Global Asset Mgt.• Pioneer Investments

Domini 400 Social Index – S&P 500Comparative Performance Since Inception in May 1990 to June 2003

5 Years: July 1998 to July 2003

•DJSI World – USD Performance and Risk (I)December 1993 - June 2003, USD, Price Index

80

130

180

230

280

330

12/93 6/94 12/94 6/95 12/95 6/96 12/96 6/97 12/97 6/98 12/98 6/99 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03

DJSI World (in USD) DJGI World (in USD)

• DJSI World / DJGI World:• Correlation: 0.9644 Tracking Error: 4.37%• DJSI Volatility: 16.33% DJGI Volatility: 15.10%

67%40%

http://www.sustainability-index.com/

ABN AMRO Bank, N.V.Banco BradescoBanco ItaúBanco Itaú BBABank of AmericaBarclays plcBBVACalyonCIBCCitigroup Inc.Credit Suisse GroupDexia GroupDresdner BankEKFHSBC GroupHVB GroupING GroupKBCMCCMizuho Corporate BankRabobank GroupRoyal Bank of CanadaStandard Chartered BankThe Royal Bank of ScotlandUnibancoWestLB AGWestpac Banking Corporation

• 27 financial institutions from 14 countries have adopted the Equator Principles. These financial institutions operate in over 100 countries. As a result, the Equator Principles have become the project finance industry standard for addressing environmental and social issues in project financing globally.

• the banks which are using the Equator Principles arranged $55.1 billion of project loans in 2003, representing 75% of $73.5 billion project loan market volume in 2003.

http://www.equator-principles.com

ABN AMRO Bank, N.V.Banco BradescoBanco ItaúBanco Itaú BBABank of AmericaBarclays plcBBVACalyonCIBCCitigroup Inc.Credit Suisse GroupDexia GroupDresdner BankEKFHSBC GroupHVB GroupING GroupKBCMCCMizuho Corporate BankRabobank GroupRoyal Bank of CanadaStandard Chartered BankThe Royal Bank of ScotlandUnibancoWestLB AGWestpac Banking Corporation

LOAN CRITERIA• The Equator Principles apply to projects which cost

$50 million or more. projects costing less than $50 million represent only 3% of the market.

• financial institutions will not provide loans to customers which are unable to or do not follow the financial institutions' environmental policies.

• financial institutions will require their customers to demonstrate in their environmental and social reviews, and in their environmental and social management plans, the extent to which they have met the applicable sector-specific guidelines

• If those plans are not followed, and if deficiencies are not corrected, financial institutions will have the ability to declare the project loan in default.

http://www.equator-principles.com

IFC Environment and Social Development Guidelines

"When we first obtained financing from IFC, the environmental standards seemed like an obstacle, but we realize now that they have helped us build a strong business," notes Rafael Wong, Executive Vice President of Favorita, an Ecuadorian banana grower that became the first firm to receive the Rainforest Alliance’s certification for management of environmental and social concerns in 2000.

"And in five years from now, there will be no access to international markets for companies that do not show this respect for the environment. It is becoming fundamental to international trade."

•http://ifcln1.ifc.org/ifcext/enviro.nsf/e11ffa331b366c54ca2569210006982f/ab563c471974212685256d800068a8fb?OpenDocument

Impactt and HKPC Overtime ProjectA clear inverse correlation between worker efficiency and

overtime hoursFindings:

• If wages reduced workers leave the factory

• Factories use negative management techniques to increase productivity and control workers- fines,late payment of wages etc.

• Efficiency levels in factories studied low

• A clear inverse correlation between efficiency and overtime hours

Recommendations:

• Improve worker and management communications

• Ensure workers get paid benefits from increased productivity

• Provide package of benefits/incentives to skilled workers

• Commitment of factory managers, and purchaser/agent decisive

http://www.impacttlimited.com/site/casestudy_item.asp?CS_ID=9

CSR – MANAGING RISK• Positive Investment of Time and Money

• Increase Competitiveness and Attract and

Retain Clients and Investors

• Reduce Risk of Fines

• Reduce Risk of Negative Publicity

• Reduce Risk to Brand Name and share

value

Market catalysts for SRI in Asia

• Scandals and demographics• SRI attracts quality customers

– Long-term investors not day traders– Regular earners– Tertiary education

• Maturing markets everywhere thrive on – Better disclosure– Consistent oversight – More informed choices

• Global capital and customers

Labour Issues in the Investment Strategy of Socially Responsible

Investment (SRI)

David St. Maur SheilDirector, ASrIA

CSR for SustainabilityTaipei, December 2004