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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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
10
is this validated as a “real” investment opportunity?
Is performance the only factor?
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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’
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stakes
GLOBAL REACH, LOCAL EXPERTISE
Key Questions (cont’d)
What
13
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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GLOBAL REACH, LOCAL EXPERTISE
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