Introduction. Rate the Raters Phase 5 The Investor View. Sept 2012 Oct 2012 Nov 2012 Dec 2012 Polling the Experts. The Company Perspective

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2 Introduction Sept 2012 Oct 2012 Nov 2012 Dec 2012 Polling the Experts The Company Perspective The Investor View The Raters Response How sustainability experts view and use corporate sustainability ratings. How companies are using and getting value from ratings. How investors are using and getting value from ratings. How ratings agencies have responded to these findings.

3 Our Approach We partnered with Bloomberg to survey over 1000 investment professionals to understand their perspectives on ESG - Geography: Global coverage, including 33% from the US, 8% UK, 6% India, 4% Brazil, 3% China and 3% Germany - Function: Nearly half were research analysts or portfolio managers - Experience: Over half have 11 or more years - Asset class: 74% cover equities, 41% corporate bonds, 29% commodities (respondents could select more than one) We also interviewed over 20 analysts and portfolio managers to probe deeper than our survey allowed

4 How Often Investors Consider ESG 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Never Sometimes Often Always Environmental Social Governance Q. How often do you consider environmental issues in your analysis of companies? (e.g. climate change, energy, water, green products and services, etc.) Q. How often do you consider social issues in your analysis of companies? (For example, human rights, employee training and development, diversity, etc.) Q. How often do you consider matters of corporate governance in your analysis of companies? (e.g. separate Chair and CEO, remuneration, Board independence)

5 Importance of Environmental Issues Important / Very Important 70% 60% 50% 40% 30% 20% 10% 0% Climate change / GHG emissions reductions Energy efficiency Water Waste Green product and service opportunities Q. How important are the following environmental issues in your analysis of companies?

6 Importance of Social Issues Important / Very Important 80% 70% 60% 50% 40% 30% 20% 10% 0% Human rights Employee training and development Q. How important are the following social issues in your analysis of companies? Diversity Philanthropy Customer relationship management Health and safety "Social" product and service opportunities

7 Importance of Governance Issues Important / Very Important 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Separation of Chair and CEO positions Board independence Executive remuneration Board diversity Board-level accountability for env. and social issues Ethics Q. How important are the following social governance issues in your analysis of companies?

8 Investor Sources of ESG Information In-house research Sell-side research Other third-party research Third-party data providers Third-party ratings, rankings and/or indices Company-reported information Direct company engagement Government or agency data Other third-party research I don't consider ESG information % of respondents 0% 10% 20% 30% 40% 50% 60% Q. If you consider ESG data and/or information in your analysis of companies, how do you obtain such data and/or information? Check all that apply.

9 How Investors Use ESG Information 25% 20% 15% 10% 5% At least once per month At least once per week 0% Gain intelligence on company ESG strategy / performance Benchmark companies against their peers Engage companies on their ESG practices Cast proxy votes Make investment decisions Q. For those sources checked above, how often do you use the data and/or information to?

10 Use of and Satisfaction with Ratings Vigeo Ratings Trucost Corporate Environmental Data Sustainalytics Global Platform Company Ratings Oekom Corporate Ratings MSCI ESG Research and Indices GS SUSTAIN Research FTSE4Good Index Series EIRIS Company Sustainability Ratings Dow Jones Sustainability Indices CRD Analytics Carbon Disclosure Project Bloomberg ESG Data ASSET4 ESG Ratings % of respondents which use rating 2.7% 4.8% 10.9% 2.7% 25.3% 9.2% 14.2% 5.9% 44.1% 7.7% 18.3% 53.6% 5.7% Average of very and extremely satisfied users across all ratings 40% Q. Which of the following ratings, rankings and/or indices do you utilize at least sometimes in your work? Check all that apply. Q. How satisfied are you with the selected ratings, rankings and/or indices? Show only those options that were selected in previous question.

11 Barriers to Using ESG Information ESG data and information is not readily accessible or available ESG data and information is too expensive Companies do not adequately explain why ESG issues are important Available ESG data and information are inconsistent or of poor quality The methodologies of third-party ESG data and information providers are not transparent or clearly understood ESG data and information are insufficient in coverage / scope ESG data and information do not fit into traditional tools of financial analysis I don t consider ESG issues material to my work % of respondents 0% 20% 40% 60% 80% Q. Why do you not utilize ESG data and information? Check all that apply.

12 Improving Satisfaction with Ratings Deepen their analysis of companies Expand the universe of coverage Spend more time engaging with the companies under evaluation Maintain consistent methodologies over time Make methodologies and results fully transparent to companies under evaluation Make methodologies and results fully transparent to end-users (i.e. clients) Apply greater focus on sector-specific and/or material issues % of respondents 0% 10% 20% 30% 40% 50% 60% Q. What could the providers of these ratings, rankings and/or indices do to improve your satisfaction with them? Choose three only.

13 Use of ESG Information: Past and Present 70% Today vs. 3 years ago Today vs. 3 years from now 60% 50% 40% 30% 20% 10% 0% Less More Same Q. Relative to three years ago, how often do you utilize ESG data and/or information today? Q. Compared with today, how often do you expect to utilize ESG data and/or information in three years?

14 Closing Thoughts from Our Interviews Language and Framing Matter Socially responsible investment impact investing sustainability creating shared value responsible ESG community investing investment corporate social responsibility business ethics

15 Closing Thoughts from Our Interviews The battle between Importance & materiality

16 Closing Thoughts from Our Interviews Focus on the bigger picture / themes

17 Rate the Raters Phase 5 Closing Thoughts from Our Interviews Ratings are just the tip of the iceberg

18 Closing Thoughts from Our Interviews Changing the rules of the game: time horizons and public policy Trust and confidence are the product of long-term commercial and personal relationships: trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other s expense. The Kay Review A clear, stable, ambitious and cost-effective policy framework is essential to underpin the investment needed to deliver substantial greenhouse gas emissions reductions by mid-century. The Carbon Price Communiqué,

19 Thank you Also available Michael Sadowski