ESG USA 2010 June 23, 2010 Christopher C. McKnett 1
SSgA: Global Scale, Local Presence San Francisco Toronto Montreal Chicago Boston Rye Brook Wilton New York Atlanta London Paris Zurich Geneva Amsterdam Brussels Frankfurt Munich Milan Dubai Seoul Shanghai Hangzhou Hong Kong Bangalore Tokyo Investment Center Marketing/Relationship Management Office Global Alliance Company Singapore Sydney Melbourne SSgA at a Glance 2010 CMINST-0808 One of the World s largest institutional investment managers with $1.9 trillion in assets under management * 2,217 employees, 449 investment professionals** As of March 31, 2010 * Includes Global Alliance companies 2,900+ clients, 4,000+ investment plans and 385+ investment performance streams 10 global investment centers and 24-hour trading capability, with trading desks in Boston, London, Hong Kong 2
Client Trends by ESG Segment Phase Goal Motivation Primary Techniques Management Style Trend Comments First Generation Avoid investments in companies that are not compatible with mission and goals Align investments with values or mission Exclusionary screening Active or Passive Steady Emerging markets Second Generation Incorporate ESG factors into investment decisions Recognize materiality of some ESG issues Improve standards of corporate behavior Positive screening Best in class selection Engagement Proxy voting Active or Passive Inconsistent investment demand Increasing corporate governance demand Third Generation ESG issues can be used to seek enhanced performance and manage risk Generate alpha Risk management Use ESG data to identify companies that managers believe are expected to outperform Mainly Active Increasing Equities lead, Fixed Income and Real Estate second Sources: SSgA, KLD Research & Analytics 3
Integration Example: Equities Looking at ESG Factors through a Telescope 0.04 0.02 Yearly Average Information Coefficient of Super ESG Rating MSCI All Country Index 2003 2009 0.00-0.02-0.04-0.06-0.08-0.10 2003 2004 2005 2006 2007 2008 2009 Average 1 mo 3 mo 6 mo 12 mo Source: SSgA Advanced Research Center, September 2008. and through the Microscope Risk (p.a.) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 19951201 19960601 19961201 19970601 Source: SSgA Advanced Research Center, May 2010. This information is not intended as investment advice. Rolling 12 Month Risk for Asia Pacific ex Japan ESG-enabled Base-case 19971201 19980601 19981201 19990601 19991201 20000601 20001201 20010601 20011201 20020601 20021201 20030601 20031201 20040601 20041201 20050601 20051201 20060601 20061201 20070601 20071201 20080601 20081201 20090601 4
Integration Example: Real Estate Investment Grade REITS Outperformed Over the Sample Period Historical Performance of North American REITS, February 2003 December 2008 Sorted by Sustainability Rating on AAA (high) to CCC (low) Scale Past performance is not a guarantee of future results. Source: SSgA, The Tuckerman Group, Innovest Strategic Value Advisors. This information is not intended as investment advice. The above ratings are created by Innovest Strategic Value Advisors, where they use a proprietary methodology to come up with an Sustainability Rating. Securities are rated AAA (best) to CCC (worst) on a sector relative basis. For more information on this rating methodology please go to www.riskmetrics.com/sustainability. 5
Appendix A: Biography
Biography Christopher C. McKnett Chris McKnett is a Vice President of Boston-based State Street Global Advisors. He is the Product Engineer for the firms global Environmental, Social and Governance (ESG) investment business. Chris works across asset classes and investment teams to champion sustainable and responsible investment on behalf of SSgA and its clients. His primary responsibilities include producing thought leadership, product management, analyzing market trends, and business strategy. Before his current role at SSgA, Chris headed business development for KLD Indexes, a unit of KLD Research & Analytics, Inc. Chris began working in the investment management industry in 1999. He earned his Bachelors of Science in Business Administration from the University of Connecticut and his MBA from the Daniels College of Business at the University of Denver. Chris is a Fellow Alum of The Aspen Institute Business & Society Program CMINST-0795 7