Post Conference Materials

Monday 29 October - SRI and Savings Plans in Asia Speakers & Presentations SPEAKER PANEL : Pension and Life Fund View of SRI パネル・ディスカッション: 年金基金や生保基金はSRIをどうみているか Chair: Mr. George Curuby, President, Curuby & Company Panel: Mr. Masafumi Hikima, President & CEO, Nikko Asset Management Co., Ltd. 127 KB Pension and Life Fund View of SRI: The Japanese Experience Ms. Emma Howard Boyd, Director, Head of Environmental Research Unit, Jupiter Asset Management 450 KB SRI - an investment strategy Mr. Tomohisa Narukawa, Managing Director, The Mutual Aid Assoc. for Tokyo Metropolitan Teachers & Officials Summary by Dr. George Curuby, Chair Tomohisa Narukawa, MD - Managing Director, The Mutual Aid Association for Tokyo Metropolitan Teachers and Officials This association established a SRI fund using environmental screening in November 1990. The fund uses company research provided by Good Bankers. The fund screens for environmental issues, equal rights for women in the workplace, and corporate governance. This fund was initially well received by the association's board of directors and has subsequently received wide acclaim from environmental groups in Japan. The fund takes a long-term investment approach, but because of the need to provide an income stream to the retiree members of the fund, there is some active turnover in order to transform paper profits into distributions. This SRI fund is one small part of the overall portfolio, which totals about US$1 billion. The overall fund is highly diversified, but for the past several years the equity performance has not been satisfactory. As a result, the association is planning to expand its investment activities to a wider range of specialized, higher-return investment strategies. In the near future, the association is planning to establish a balanced-type (bond and stock) SRI fund for its plan members. Masafumi Hikima, CFA, CMA - President & CEO, Nikko Asset Management Co., Ltd. Nikko established its first Eco Fund in August of 1999, and it is now one of many such funds in its range of product offerings. When this retail mutual fund was first established, Nikko was surprised to see that it attracted a large number of new investors, particularly among women and the younger generation. In addition to initial sales through brokerage firms, the traditional channel for fund sales in Japan, Nikko has also expanded the sales of its SRI funds through banks. Nikko has found that Japanese corporate executives are increasingly asking whether and why/why not their company is included in Nikko's SRI portfolios. Mr. Hikima is gratified that this issue is becoming more and more of a focus for corporate executives. Nikko has also found that public and corporate pension funds are expressing a growing interest in Nikko's SRI products. The introduction of defined contribution (DC) plans in Japan started in October 2001, and the growth has been initially slow. However, Nikko's Eco Fund has been included in the plan menus of several DC plan administrators, and Mr. Hikima is optimistic that individual investors will gradually invest part of their plans in these products. Investor interest in SRI has been limited due to: (1) the lackluster Japanese equity market, (2) limited individual awareness of SRI and lack of education, (3) a regulatory framework that promotes SRI investments, and (4) the lack of Japanese SRI benchmarks. SRI research coverage, corporate disclosure, and transparency are important issues that are not as evolved in Japan as in the West. Nikko's focus is on positive screening rather than negative screening. According to a recent corporate survey, corporate executives increasingly perceive corporate governance as an important issue, and 70-80% of those interviewed believe proxy voting is important. In Mr. Hikima's opinion, a shift away from active management to passive management should not reduce the need for proxy voting. He believes that proxy voting will become even more important in Japan than it is today. A proxy voting policy and internal guidelines of fund managers is a manager selection criterion that is increasingly used. Mr. Hikima believes that disclosure is insufficient at many Japanese corporations and shareholders meetings are not open to discussion. He thinks that this will gradually change. Finally, Mr. Hikima referred to a recent corporate survey by the Keizai Koho Center that found that corporate executives ranked the most important concerns, in the following order: (1) need for more superior products and services, (2) transparency, (3) environmental policies, (4) employment, and (5) high ethics. Emma Howard Boyd - Director &Head, Environmental Research,Jupiter Asset Management Ms. Boyd expressed her delight to be a member of ASrIA and referred to the recent establishment in Japan, together with their parent company, Commerzbank Asset Management, of a SRI fund for a Japanese insurance company. This fund focuses primarily on companies in North America, the UK, and Europe. Ms. Boyd found it very interesting that the leading UK pension fund investing in SRI is the University SuperAnnuation Scheme, and the leading fund in Japan is the Mutual Aid Association for Tokyo Metropolitan Teachers and Officials. In addition to managing portfolios, one of Jupiter's main roles is advising mainstream fund managers about the risks associated with their mainstream funds. Jupiter currently manages 9 billion UK pounds of assets, of which 300 million are dedicated to SRI. SRI is a future-oriented investment approach which focuses on companies that have the objective of managing a triple bottom line: financial, environmental, and social. Ms. Boyd mentioned that the assets of SRI investors tend to be 'stickier' than those of other investor groups. Over a three-year period, she said that at Jupiter, 70-80% of SRI investors are still holding on to their investments, whereas only 30% of the original investors were still left in their mainstream products over the same period. Jupiter uses both positive and negative screens. It first applies the following three negative screens: (1) arms, (2) tobacco, and (3) nuclear energy. With regard to positive screening, it focuses broadly on: (1) the problem solving ability of companies (75% importance), and (2) companies that try to minimize negative impacts (25% importance). Environmental issues are increasingly taking center stage of screening activities, partly because of the tremendous growth of new environmental legislation. In the EU in 1999 alone, there were 68 new laws proposed. With regard to the impact of an aging population, this demographic phenomenon is also creating investment opportunities with regard to companies that are focusing on this market. Air quality and climate change are also significant areas for investment; as are potable water and sanitation. Jupiter also focuses on thematic issues with regard to security selection, using three criteria contained within the category it calls "Best in Class". These criteria are: (1) POLICY: a commitment to continuous improvement, (2) PEOPLE: environmental champions, and (3) PRACTICE: integration into core management systems. Ms. Boyd pointed out that HSBC Securities and other European brokers are starting to include SRI-related information in their sell-side research, which is a signal to executive management that investors are increasingly interested in learning about companies. Ms. Boyd is proud of the performance of the Jupiter Ecology Fund, which is ahead of the traditional UK and MSCI indices over a long period of time. Question and Answer Session Question: In addition to environmental screening, aren't there also social issues and other issues that need to be added to the screening process? Answer: Benchmarks are not only a way to measure performance, but they are an expression of a way of thinking, an approach. Question: When looking at the difference between SRI in Western and Asian societies, it is important to point out that religious organizations have not really been the driving force behind SRI. The four primary drivers have been: (1) science: the disintegrating environment and its impact on health, (2) investigative journalism: the ability to explore public and corporate malfeasance, (3) citizenship: a growing local and global sense of individual responsibility, and (4) NGOs: who have put political pressure on governments and companies through negative and positive measures. Answer 1: Fund managers and institutional investors in the UK are starting to look at the environmental and social risks in their portfolios, which will have an impact on their long-term performance. Answer 2: In Asia, until our society has all of these influences working together, SRI investment will develop slowly. Our pension plan focuses on negative screening, so in this sense we place more importance on the companies that we do not want to include in our portfolio. Answer 3: The impact of NGOs in Europe has had a large impact on CSR. However, in Japan, corporations do not yet enter into a dialogue with these types of organizations.

Dr. George Curuby Mr. Masafumi Hikima Ms. Emma Howard Boyd Mr. Tomohisa Narukawa