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3iG International Interfaith Investment Group. TBLI Faith Consistent Investment Seminar New investments for the Faiths: opportunities or sources of conflict? Mark Campanale, 3iG, Member of Advisory Board Thursday 9 November 2006. 3iG International Interfaith Investment Group.

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slide1

3iG

International 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

slide2

3iG

International Interfaith Investment Group

  • Approaches to SRI
  • Growth across Europe
  • Mission/faith consistent investment
  • Investing in social value creation
sustainable and responsible investment sri
Sustainable and responsible investment (SRI)

Grappling with different agendas

  • 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

3iG

International Interfaith Investment Group

slide5

European SRI retail market: number of SRI funds

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

Source: Avanzi SRI Research / SiRi Company (2005)

3iG

International Interfaith Investment Group

slide6

Total European SRI funds under management

SRI assets grow by 27% from 2004 - 2005

€ Billion

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

3iG

International Interfaith Investment Group

slide7

Mission related investment continuum

The F.B Heron Foundation – lessons

Below-Market Investments

Public Equity

Fixed Income

Private Equity

Cash

Guarantees

Subordinated Loans

Senior Loans

Cash

Grant Support

Equity

Market-Rate Investments

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

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

3iG

International Interfaith Investment Group

slide8

Mission related investment continuum

How tight is the fit with values or mission?

Below-Market Investments

Public Equity

Market-Rate Investments

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

- Avoiding the bad

- Investing in the good

- Turning the bad into the good

3iG

International Interfaith Investment Group

which investments can align with values
Which investments can align with values?

MSCI World Index: mega corporations dominate index

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

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

3iG

International Interfaith Investment Group

which investments can align with values10
Which investments can align with values?

MSCI World Index: mega corporations dominate index

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

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

3iG

International Interfaith Investment Group

which investments can align with values11
Which investments can align with values?

FTSE All Share: top ten stocks dominate UK index

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 £30.5bn

FTSE 100

82.4%

Mining – 5.6%

Pharma – 7.6%

Oil & Gas – 15.9%

Banks – 16.6%

Rest of – 17.6%

Index

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

3iG

International Interfaith Investment Group

equities based faith consistent investment
Equities-based faith consistent investment

Knowing where to look on stock markets

  • 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

3iG

International Interfaith Investment Group

slide13

Mainstream classification methodology

Researching companies aligned with values

  • 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

Source: Henderson Global Investors

Note: As at 31 December 2005

3iG

International Interfaith Investment Group

slide14

Cleaner

Energy

Efficiency

Water Management

Environmental

Services

Sustainable

Transport

Industries

of the

Future

Health

Knowledge

Social Property

& Finance

Safety

Quality of Life

Mission or values as an investment theme

4,765 stocks in 10 mission aligned themes

3iG

International Interfaith Investment Group

ten investment themes
Ten Investment Themes

Investment opportunity in a sustainable world

  • 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

3iG

International Interfaith Investment Group

cleaner energy stock example
Cleaner energy – stock example

Evergreen Solar (US)

Evergreen Solar Inc.

31 December 2002 to 31 December 2005

  • 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

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

3iG

International Interfaith Investment Group

healthcare stock example
Healthcare - stock example

Amplifon (Italy)

Amplifon

31 December 2002 to 31 December 2005

  • 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

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

3iG

International Interfaith Investment Group

social finance stock example
Social finance - stock example

Debt Free Direct plc

Debt Free Direct

31 December 2002 to 31 December 2005

  • 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

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

3iG

International Interfaith Investment Group

quality of life stock example
Quality of Life - stock example

ABC Learning Centres (Australia)

ABC Learning

31 December 2002 to 31 December 2005

  • Child care is agrowth 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.

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

3iG

International Interfaith Investment Group

performance and risk
Performance and risk

Aligning with values generates new investment ideas

  • 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.

3iG

International Interfaith Investment Group

back tested performance of the 10 themes
Back tested performance of the 10 themes

Market 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

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

3iG

International Interfaith Investment Group

when sri funds perform
When SRI funds perform

Top eco-funds posted average one year return of 39 percent

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

3iG

International Interfaith Investment Group

ftse all share market
FTSE All Share Market

When SRI doesn’tperform

Source: Datastream (total returns) to end May 2006

3iG

International Interfaith Investment Group

worlds largest sri managers
Worlds largest SRI Managers

Asset managers % of total business

Source: Capital Bridge, as at 29 June 2006

3iG

International Interfaith Investment Group

ethical investor analysis motivation
Ethical Investor Analysis - motivation

Reasons for Investing

Importance of factors influencing investment in Henderson Ethical Fund

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

  • Respondents concerned about returns, but not overly
  • Shareholder advocacy is of greatest importance
slide27

Ethical Investors – their views on the future

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

  • Many of the issues revolved around the developing world
slide28

Mark Campanale

Advisory Council Member, 3iG

Education: York University

BA (Hons) Politics and Economic History

Wye Agricultural College, London University

MSc Agricultural Economics

Career:

1985 Environmental Consultant

EC, ERM, World Vision, Band Aid/Live Aid

1989 Jupiter Asset Management

SRI Investment Analyst

1994 NPI Asset Management Ltd

SRI Investment Analyst

1996 NPI Asset Management Ltd

SRI Investment Marketing Manager

1999 Henderson Global Investors

SRI Investment Marketing Manager

2001-2006 Henderson Global Investors

Associate Director of SRI Business Development

Contact: mark@campanale.co.uk