Socially Responsible Investing Panel

NORTHERN TRUST 2009 INSTITUTIONAL CLIENT CONFERENCE GLOBAL REACH, LOCAL EXPERTISE Socially Responsible Investing Panel Chris Carlson John Krieg ...
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NORTHERN TRUST

2009

INSTITUTIONAL CLIENT CONFERENCE

GLOBAL REACH, LOCAL EXPERTISE

Socially Responsible Investing Panel Chris Carlson

John Krieg

Richard Clark

Stefanie Hest

Head of Strategic Development

Director of Global Product Management

Senior Director Institutional Sales

Investment Strategist

© 2009 Northern Trust Corporation

Revisiting Socially Responsible Investing Agenda

„ Socially „ Trends

Responsible Investing Overview

in SRI

„ Implementation „ SRI

2

of SRI Strategies – Key Questions

at Northern Trust

GLOBAL REACH, LOCAL EXPERTISE

Socially Responsible Investing – Overview

Socially Responsible Investing (SRI) is a broad-based investment strategy that incorporates environmental, social and corporate governance (ESG) factors within the investment process.

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Evolution of Socially Responsible Investing

„ Negative ‹

Restrict investment to companies aligned with legislature, mission or preferences

„ Positive ‹

Screens

Screens

Select or overweight stocks that promote or support mission or preferences

„ Shareholder ‹

Advocacy

Advocate for policies and management of issues aligned with mission, preferences or profitability

„ Environmental, ‹

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Social & Corporate Governance (ESG) Integration

Long-term outperformance of benchmark by investing in companies with superior management of material ESG issues

GLOBAL REACH, LOCAL EXPERTISE

Continued Growth for Socially Responsible Investing

„ SRI

assets in the U.S. surged 18% from 2005 to 2007, outpacing more broadly managed assets ‹

Nearly $2.71 trillion in total AUM using SRI strategies

‹

Nearly 11% of all dollars under professional management in the U.S. ($2.8 trillion)

‹

Nearly 15% of all dollars under professional management in Europe ($1 trillion)

„ SRI

investors have expanded

‹

Personal, institutional

‹

Faith-based, public funds, foundations, endowments

„ SRI

vehicles have expanded

‹

Equity, fixed income, real estate, private equity

‹

Mutual funds, exchange traded funds (ETFs), separate accounts, institutional commingled vehicles

Source: Social Investment Forum report, 2007

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Going Global… Socially Responsible Investing is going global… Index vendors have reacted to growing demand for SRI products and have expanded their offerings. „ KLD

Indexes

‹ KLD

Global Sustainability Index

‹ KLD

Global Climate 100 Index

„ FTSE

Index

‹ FTSE4Good

„ Standard ‹ S&P

„ Dow

& Poor’s

Global Clean Energy Index

Jones

‹ Dow

6

Global Index series

Jones Sustainability Indexes

GLOBAL REACH, LOCAL EXPERTISE

Socially Responsible Investing – Trends

„ SRI

proponents believe long-term investment returns will potentially improve if ESG issues are considered

„ Evolution

of SRI investing (negative screening, positive screening, full integration)

„ What

Northern Trust is doing to integrate socially responsible investing into our process

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GLOBAL REACH, LOCAL EXPERTISE

Socially Responsible Investing – Investment Challenges

„ Is

SRI an overlay or asset class?

„ What

is the desired involvement… awareness, investment analysis, engagement?

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GLOBAL REACH, LOCAL EXPERTISE

Starting Point for SRI / ESG Consideration – Key Questions „ Are ‹

the investment objectives compatible?

Which is more important, maximize risk-adjusted return or maximize social / environmental outcome?

„ Do

you believe the consideration of sustainability must be an integral part of the analysis and management of investment portfolios? ‹

To what level?

„ Do

you believe the long-term economic viability of business and investments can be greatly affected by the risks and opportunities of our physical and social environments? ‹

How do you quantify?

„ What

is the overall effect on your investment policy statement? ‹

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How does this fit as part of an overall strategic investment plan? GLOBAL REACH, LOCAL EXPERTISE

Key Questions (cont’d)

„ How

does this redefine my fiduciary responsibility?

‹

Prudent man

‹

ERISA

„ To

what degree should my fiduciary responsibility affect public policy?

„ How ‹

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is this validated as a “real” investment opportunity?

Is performance the only factor?

GLOBAL REACH, LOCAL EXPERTISE

Key Questions (cont’d) „ What

‹

is it all about?

ALPHA!

„ What

is the most opportunistic structure? Where do you “house” it? ‹

Traditional long-only public equity

‹

Private equity

‹

Limited partnerships

‹

Long / short

„ How

do you measure performance?

‹

What is the most appropriate benchmark?

‹

Standardized vs. custom benchmarks

„ What „ How

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are the costs?

do I implement?

GLOBAL REACH, LOCAL EXPERTISE

Key Questions (cont’d)

„ How

do I characterize tangible and intangible issues? ‹ Ethical

issues

“Sin” (negative) screening ‹ Social

issues

Human rights Labor relations Family rights / privileges ‹ Environmental

issues

Carbon output Other pollutants Energy efficiency ‹ Shareholders’

12

stakes

GLOBAL REACH, LOCAL EXPERTISE

Key Questions (cont’d)

„ What

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are the initiatives to explore?

‹

Renewable / alternative energy

‹

Carbon credits / carbon offsets

‹

Climate change

‹

Waste recycling

‹

Water purification

‹

Toxic emission controls

‹

Corporate governance

‹

Social screens

GLOBAL REACH, LOCAL EXPERTISE

Conclusion

Socially Responsible Investing and the integration of ESG policies and procedures is no longer a niche for the investing community. SRI is an investment approach – not just a product category. The SRI market continues to evolve quickly, and environmental and social issues are becoming important factors in conventional portfolio management and the construction of asset allocation models.

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Northern Trust Northern Trust’s Commitment to SRI „ UN

Principles of Responsible Investing

„ Investment

management

‹ Nearly

25 years of experience managing socially responsible portfolios and socially-screened assets

Sudan-free capabilities • Northern trust worked with public fund clients to develop, implement

and manage a strategy for their Sudan divestment mandates

• Our relationships with independent research providers, including

KLD research & analytics and institutional shareholder services (ISS), provide us with tools to develop optimal approaches to identifying companies doing business in Sudan

• We launched six commingled and 12 separate accounts for Sudan-

screened index solutions

Northern Global Sustainability Index Fund • Northern trust launched the first global socially responsible index

mutual fund in the U.S. in March 2008

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Important Information

NOT A SOLICITATION. No information provided herein shall constitute, or be construed as, an offer to sell or a solicitation of an offer to acquire any security, investment product or service, nor shall any such security, product or service be offered or sold in any jurisdiction where such offer or solicitation is prohibited by law or regulation. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions expressed are current as of the date appearing in this material only and are subject to change without notice. All rights reserved.

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Biographies Chris Carlson Chris Carlson is currently Managing Director and Head of Global Strategic Development for Northern Trust Global Investments (NTGI) – Chicago. He is responsible for the development and implementation of NTGI’s new business strategy, which increases strategic focus and delivers improved market segmentation in the institutional and personal market channels. John Krieg John Krieg is a Senior Vice President at The Northern Trust Company, Chicago. He is responsible for Global Investment Product Management across NTGI’s Fixed Income, Equity Quantitative, Manager of Managers investment product lines. His responsibilities include product development, positioning, pricing and delivery. John is a CFA charterholder and holds NASD Series 7 and 63 Licenses. Richard Clark Richard Clark is Senior Director of Institutional Sales for Northern Trust Global Investments. Richard is responsible for leading the sales and client service activity for the Public Fund segment within the central and western United States. Stefanie Hest Stefanie J. Hest is a Vice President at The Northern Trust Company. She is an investment strategist in the Global Quantitative Team. Stefanie holds a bachelor’s degree in Business Management from Cornell University and is a member of New York Society of Security Analysts.

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NORTHERN TRUST

2009

INSTITUTIONAL CLIENT CONFERENCE

GLOBAL REACH, LOCAL EXPERTISE

Thank you. Chris Carlson

John Krieg

Richard Clark

Stefanie Hest

Head of Strategic Development

Director of Global Product Management

Senior Director Institutional Sales

Investment Strategist

© 2009 Northern Trust Corporation

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