PowerPoint Presentation

24 April 2014Accentuate the Positive(s) Presented by Neville White Head of SRI Policy & ResearchEcclesiastical Investment Management Ltd.

#Ecclesiastical Investment Management LtdPart of the Ecclesiastical Insurance Group founded 1887

Owned by All churches Trust all distributable profits to good causes

Top 10 UK donor strategic plan to donate 50m over three years

Ecclesiastical launched its first SRI UK retail fund in 1988

Suite of six ethical retail and charity funds across geographies and asset classes

Total Assets Under Management 2.25bn*

Award winning, experienced team with a strong retail proposition

*Source: Ecclesiastical as at 31/12/13

#Good morning. My name is Ketan Patel. I am a Senior Investment Analyst at Ecclesiastical Investment Management. Ive been with company for nearly a decade and am responsible for analyzing companies from both a financial and SRI perspective. As a business, we are pioneers of Socially Responsible Investment in the UK, having launched into the market in 1988.

We are recognized as leaders in this space, having won the Moneyfacts Best Ethical Investment Provider Award for 4 consecutive years. The Amity International, UK and Sterling Bond Funds have also been recognized at a Fund Level.

My aim today is to give you an accessible overview of Socially Responsible Investment and get you thinking how your businesses can get involved. 2Investing Positively

#The Many Models of SRISRI is an umbrella term which encompasses many approaches including ethical, responsible, sustainable, and environmental, social and governance (ESG)

Positive criteria emerge after 2000 following changes to UK pensions legislation Negative criteria ethical adopted by faith investors applying a moral dimension to investing #Applying negative criteria is (relatively) straightforwardIdentifies moral imperatives, but adds little value to processDoes not allow investor to work for changeDoes not allow engagement to raise business standardsWhat would a sustainable tobacco company look like?Applying Positive Criteria to a Portfolio

#Holistic, integrated investment methodologyRepresents a complete active strategyMaterial ESG risks should be seen as core management issues Adds valueReduces long-term riskSupports long-term investment horizonsProvides engagement platform for change Dovetails with wider UK Stewardship Code responsibilities Advantages of Applying Positive Criteria to a Portfolio#Our SRI Process an Integrated ApproachNegative Screen

10% Threshold:

Alcohol Production Gambling Operations Pornographic or Violent Material Strategic Armaments Tobacco Production

Other Factors:

Animal Testing (cosmetics) Intensive Farming

Positive Screen

Business Practices Community Relations Corporate Governance Human Rights Labour Relations Environmental Management Healthcare Education Urban Regeneration

Positive criteria may serve as a brake on investment; e.g. no oil or mining #By way of example our range of screened funds adopt a model of integrating financial and ESG analysis via a negative screen, here on the left and a positive one, that seeks to understand what the material risks are and they will vary from business to business, and sector to sector and how well they are managed.

Engagement serves the purpose set out in the UK Stewardship Code of exhibiting responsibility by raising issues with companies and working over time to build better businesses. This can be a long, arduous and sometimes fruitless process, but the collected weight of active engaged investors does make a difference.

20 years ago few companies even had an environmental policy today the typical FTSE100 company will publish a corporate responsibility report covering multiple issues affecting the business. It is the job of an SRI manager to assess the quality of this, to see what is missing and how performance can be improved.

Some companies need this active engagement quite intensely. 7Our Nine Positive Investment PillarsPositive Screen

Business Practices Community Relations Corporate Governance Human Rights Labour Relations Environmental Management Healthcare Education Urban Regeneration

Each stock is monitored and assessed against the nine positive criteria

Essentially we are looking for each stock to earn its place in the portfolios

The investment case and the sustainability case are given equal weight

Six areas of business behaviour (risk)

Three sustainable sectors

Identifies engagement need

BUT how do you assess the environmental, social and governance positives?

#By way of example our range of screened funds adopt a model of integrating financial and ESG analysis via a negative screen, here on the left and a positive one, that seeks to understand what the material risks are and they will vary from business to business, and sector to sector and how well they are managed.

Engagement serves the purpose set out in the UK Stewardship Code of exhibiting responsibility by raising issues with companies and working over time to build better businesses. This can be a long, arduous and sometimes fruitless process, but the collected weight of active engaged investors does make a difference.

20 years ago few companies even had an environmental policy today the typical FTSE100 company will publish a corporate responsibility report covering multiple issues affecting the business. It is the job of an SRI manager to assess the quality of this, to see what is missing and how performance can be improved.

Some companies need this active engagement quite intensely. 8Evaluating Environmental, Social and Governance (ESG) PositivesEnvironmentalSocial/Governance Air & Water PollutionAccess to MedicineBiodiversityAffordable HealthcareOzone-Depleting ChemicalsEqual OpportunitiesPesticidesBribery & CorruptionClimate ChangeHealth & SafetyResource ProductivityHuman RightsEnvironmental ManagementChild LabourEnergyLabour StandardsTransportSupply Chain ManagementTropical HardwoodCommunity GivingNuclear PowerCommunity InitiativesMining & QuarryingCorporate Governance

Waste & Toxic Chemical ManagementDiversityWater ManagementExecutive Remuneration Unlike negative criteria, positives can be subjective and challenging

Materiality, and risk weighted factors of primary importance #Research, Research, Research EIM employs Sustainalytics as its principal ESG data research provider

One of several distinctive ESG providers that analyse ESG risk (EIRIS; MSCI etc.)

Quantitative and qualitative data; controversies monitor; peer group ranking; ESG ratings

Provides first stage data dump; and materiality analysis

Secondary research conducted in house including engagement

#By way of example our range of screened funds adopt a model of integrating financial and ESG analysis via a negative screen, here on the left and a positive one, that seeks to understand what the material risks are and they will vary from business to business, and sector to sector and how well they are managed.

Engagement serves the purpose set out in the UK Stewardship Code of exhibiting responsibility by raising issues with companies and working over time to build better businesses. This can be a long, arduous and sometimes fruitless process, but the collected weight of active engaged investors does make a difference.

20 years ago few companies even had an environmental policy today the typical FTSE100 company will publish a corporate responsibility report covering multiple issues affecting the business. It is the job of an SRI manager to assess the quality of this, to see what is missing and how performance can be improved.

Some companies need this active engagement quite intensely. 10Investing in Bullion is it Ethical?

#Investing in Bullion is it ethical? Mining and extractives avoided as part of failing positive criteria tests Fund managers had appetite to invest in an ETF bullion fund for diversification reasons Ethically, bullion could be viewed as benign i.e. a store of value But we asked where does the gold come from and is it ethical?

c40% of supply is recycledc15% is artisanal or illegal #The rise and rise of Gold ETFs

#Gold - Utility Whilst gold does have multiple applications its principle utility is investment Gold is effectively a parallel currency and highly portable Gold is unique in that it is extracted principally as a store of value Held as bullion in State and national reserves and as private wealth Half of all gold entering the supply chain is directed at the jewellery industry Only 10% is used for industrial and electronic purposes Ethical utility given health, safety, conflict and environmental impact is low Precious metal mining (gold and coltan principally) is fuelling conflict Traceability challenges fuel phenomenon of dirty gold#Gold - Traceability Gold supply chain is not linear Scrap gold may be recycled, pre-owned, laundered Gold can be owned by many participants within the supply chain Dirty gold has become an industry issue owing to traceability concerns Mine supply is broadly traceable apart from unregulated artisanal mines (15%) Integration of mining and refining provides some assurance Industry is beginning to coalesce around reputation and conflict free gold Chain of custody is vital i.e. integrity of inventory, bar serial numbers

#Gold Ethical Issues Gold is a primary conflict mineral particularly in Democratic Republic of Congo 2007 Uganda produced $500 worth of gold, but exported $75m mostly from DRC Specific ethical challenges associated with gold are human rights issues in high impact emerging markets Congo, Burkina Faso, Mali etc (up to 15m enslaved)

toxicity: gold is benign but requires cyanide in refining; tailings require intense management

corruption the industry is open to bribery, theft and forcible sequestration risk in theatres of conflict

gold produces more waste per ounce mined than any other metal e.g.

at state of the art Newmont Mine in Indonesia one ounce of gold is recovered from 250 tonnes of rock

one ring generates 20 tonnes of mineral waste

smelters add 142 million tonnes of sulphur dioxide to the atmosphere every year 13% of global emissions

the disparity between environmental impact and the amount recovered is at its starkest with gold#Gold Accentuating the Positive We engaged intensively with the World Gold Council The only investor to engage with the WGC on conflict free gold Industry increasing its efforts around eliminating the worst practices Kimberley rejected as a model as gold is not easily identifiable Industry started from scratch on a new verification and accreditation standard Conflict Assessment Company Assessment Commodity Assessment

#Gold Accentuating the Positive EIM led investor engagement with WGC on global conflict-gold standard

Held two seminars for investors in London to outline the Standard

Offered advise on draft Standard

Remained an informed and engaged investor throughout process

Concluded Gold ETF could be held given the contribution of engaging

Engagement and informed contribution significantly added value to our investment

And all because we asked.

Is holding gold in an ETF bullion fund ethical?#Questions and Answers

Thank You!#