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  • 1. SeiteWorkshop 11 - ESG Integration and Valuation Availability of Relevant Data, Validity of KPIs and Application by oekom Clients TBLI, London November 2010

2. about us Experience Expertise Customized services Independence Corporate & Country Research universe covers the most important stocks and bonds highest quality standard s total staff of 38 experienced and multi-disciplinary team of 27 analysts Scientific Advisory Board partner of various asset managers and inst. investors clients primarily from AT, CH, DE, DK, FR, IE, IT, JP advising funds and mandates with a total volumeof EUR 90bn (June 2010) commercial experience since 1993 independence spin-off from publishing house oekom 3. Seiteoverview ESG KPIs: increasing importance The integration of ESG issues into corporate valuation and asset management is becoming mainstream. (e.g. Eurosifs European SRI Study 2010) The materiality of certain ESG issues has increased (e.g. GHG emissions). There is an increased awareness of the economic impact of ESG issues. A set of ESG KPIs is available that fits into existing valuation models. Important step towards a more comprehensive and balanced risk assessmentImportant stimulus for companies to improve their sustainability performance 4. Seitechallenges A limit of one, two or three easy to integrate ESG KPIs (such as GHG emissions) for the assessment of ESG risks and opportunities can be a first step, but does not tap the full potential ESG research has for an improved risk analysis. Selection of KPIs ESG issues that can be illustrated by quantitative data and, therefore, fit into existing valuation models are not always the most material ones. Some ESG issues have a mid- or long-term impact on a companys economic performance. They reveal their materiality in the future. In this respect, (qualitative) ESG research can act as an early-warning system for corporate risk analysis. The selection of appropriate KPIs is a major challenge, a balance has to be found between comprehensiveness and relevance. 5. example: BP Seite20 April 2010 : the drilling rig 'Deepwater Horizon' caught fire in an explosion and two days later sunk in the Gulf of Mexico. Source: Bloomberg (2010) Development of BPs stock price 6. Seiteexample: BP Typical KPI: GHG Emissions Statoil BP MOL Exxon Shell Suncor

  • Compared to its peers, with 45 kg of GHG per boe (barrel of oil equivalent) in 2009, BP shows a good performance regarding its specific GHG emissions.
  • This KPI is important to assess the companys economic risk regarding regulatory changes, e.g. regarding a GHG trading system.
  • But it would not have contributed to an early indication regarding BPs problems relating to environmental and safety standards.

Source: oekom research AG (2010) 7. Seite20 April 2010 : the drilling rig 'Deepwater Horizon' caught fire in an explosion and two days later sunk in the Gulf of Mexico. example: BP Examples of rating topics relevant to BPs accident A C D B 2006 2007 2008 2009 2010 Prime Threshold Source: oekom research AG (2010)

  • BP has a history of major safety and environmental accidents: e.g.
  • March 2005: 15 people died and 180were injured in an explosion at BP'sTexas City refinery
  • March 2006: major oil spill at PrudhoeBay oil field in Alaska
  • During the last years, BPs performance in relevant rating topics indicated major risks relating to the companys H&S, environmental and overall ESG risks.
  • During all these years, the company infringed oekoms exclusion criterion controversial environmental practices.

Health & Safety Performance Environmental Performance in Core Business overall oekom Corporate Rating 8. Seiteexample: prominent crashes Lehman Brothers Enron Parmalat Worldcom At the time of their crashes, all of the companies had an oekom overall assessment/ rating which was well below the best in class threshold . 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9. Seitechallenges Interpretation of data The uncritical usage of ESG KPIs implies inherent risks: due to the complexity of certain ESG areas, data has to be thoroughly interpreted in order to draw proper conclusions and make informed decisions. Example: GHG efficiency of production t/mUSD Number of own production facilities Fujitsu: 5 Dell: 1 Source: oekom research AG (2010) 61.1 471,328 Dell 57.7 1,692,900 Fujitsu Sales (in bn USD) GHG Emissions (in t) 10. Seitechallenges Data quality, comparability and availability Data quality and comparability are in many cases low, which makes meaningful benchmarking and apples-to-apples comparisonsdifficult. Examples of typical KPIs for which data is not or only partly available Up to now, social and environmental performance data is not well-established in corporate controlling: the sustainability management generates a lot of data, but its impact on a companys business success remains vague. Certified organic products food sales (%) Retail (e.g. Ahold, Carrefour) SRI assets under management (%) Financials (e.g. Barclays, BBVA, HSBC) Global average fleet CO2 emissions (only home market) R&D budget on alternative drive systems and fuels Automobiles (e.g. BMW, Toyota, VW) 11. Seitechallenges Data quality, comparability and availability Example: Investments to improve environmental performance (% sales) Definition Value Company 0.066% 0.0003% No official definition available. Finmeccanica ...These investments focused on production and research facilities, and to a lesser extent on decontamination. As well as promoting the ecologically and economically efficient operation of production facilities, these investments were principally directed towards the environmentally sensitive further development of all MAN products. ... MAN Definition Value Company USD 18bn EUR 23bn ...Products or services that improve customers' operating performance or value proposition and significantly and measurably improve customers' environmental performance. ... ->including nuclear power technology General Electric ...To qualify for inclusion in the environmental portfolio, a product must reduce greenhouse gas emissions or, as an environmental technology, help combat water and air pollution. ... ->excluding nuclear power technology Siemens Example: Environmental product portfolio sales (total sales) 12. Seiteapplication by oekom clients Investment styles of oekom clients oekom researchs clients have a clear focus on Core SRI strategies*, i.e. norms- and values/ethical-based exclusions and positive screening (mainly Best-in-Class). * according to Eurosif definition, in contrast to Broad SRI (e.g. integration, engagement) > 80% < 20% in % Othersinclude: investors who integrate a reduced set of oekomindicators into their own ESG assessment models investors who govern their engagement processon the basis of oekoms research the integration of ESG data into traditionalfinancial analysis (e.g. UniCredit) Source: oekom research AG (2010) 13. Matthias Bnning oekom research AG Goethestr. 28 D-80336 Mnchen Tel: +49/89/54 41 84-90 Fax: +49/89/54 41 84-99 Email: [email_address] Web: kontakt Seite

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