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Ratings and the Long-term Investor:

The case of Climate Change

Lisa Hayles

EIRIS Friday November 13th, 2009

TBLI Amsterdam

Signatory to the

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EIRIS: Overview

● EIRIS is a not for profit research organisation specialising in environmental, social and governance research on publicly listed corporations.

● Founded 26 years ago, EIRIS was created as a collaborative research project to assist a group of churches & charities put their principles into practice.

● Our mission is to conduct high quality research on extra-financial issues to encourage improved social and environmental performance.

• Global coverage (3,000 companies) - FTSE All-World Developed & MSCI World

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3 Questions

• what practical steps can investors take to avoid investing solely with a short-term perspective?

• How can we apply these practical steps in the case of climate change?

• And would the same approach work for other long-term ESG issues?

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Investing for the long-term

Source: www.cartoonstock.com

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4 steps to focus on the long-term

• Spend more time on long-term issues –devote resources(!)

• Find new approaches to incentivise issues

• Asset Owners can seek long-term advice• Asset Mangers can offer long-term

products

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EIRIS Climate Change Toolkit

• Helping investors: • Quantify a company’s climate change

impact and management response• Profile risk in portfolios vs. a reference

benchmark• Engage with portfolio companies to

reduce climate-change related risks

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• Score for each company on a scale from zero to 100

• Below 50 considered unmitigated risk

• Above 50 risk is considered mitigated

• Above 75 considered a ‘carbon solutions company’

Carbon Risk Factor

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Example Carbon Profile

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Climate Change Performance FTSE AWD Index

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Carbon Engager Categories

• Opportunity Maximisers - Best practice companies

• Issues Managed - Good Practice• First Steps - Some engagement with the issue• Non-Starters -No climate change strategy• Poor Disclosers• Laggards - Bottom quartile performance for their

sector

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Advice requested by Asset Owners

• Ask consultants, managers & advisers for their advice on long-term issues

• For their advice on the long-term generally• 5 – 10 year scenarios• Asset allocation implications of long-term

issues

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Long-term Manager products

• The ‘Perfect’ Climate Change Fund– Perhaps a third “solutions” investments– But best in sector rebalancing for diversity– And engagement with laggards for change– Desirably on behalf of whole institution

• Attracts clients AND promotes long-term

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Conclusions

• Climate Change shows LT focus is possible• Many other issues as relevant

– Biodiversity, forests, water, governance (including issues like diversity and bribery), sustainable globalisation (human rights, labour standards, access to medicines etc.)

• Major potential benefits to all concerned

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Thank you

Lisa HaylesSenior Client Relationship Manager

lisa@eiris.org       +44 20 7840 5700 (switchboard)

+44 207 840-5727 (direct)web: www.eiris.org