By invitation, panel presentation for Session #6: Doing Well...Good...and Right: Standards and Practices for Pension Fund Investment in Emerging Markets...and Other Countries ELEVENTH ANNUAL PENSIONS AND CAPITAL STEWARDSHIP CONFERENCE, MAY 1 –MAY 3, 2013 Pensions and Capital Stewardship Project, Labor and Worklife Program, Harvard Law School, Cambridge, Massachusetts

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Session #6
Best Practices for Pension Fund Investment
in Emerging Markets
Making long term investment decisions for sustainable growth
in global markets in the context of the increasing importance of
environmental, social and corporate governance (ESG) factors.
Graham Sinclair
Principal, SinCo
@esgarchitect
graham.sinclair@sincosinco.com
+1.484.802.9908
www.sincosinco.com
@SinCoESG
info@sincosinco.com

2. !2@SinCoESG I sincosinco.com I info@sincosinco.com
Key messages
• GROWTH MARKETS. The business case for investing in global
emerging markets. Accessing growth via global majors versus local
majors, investments accessible in local or foreign jurisdictions.
• INVESTOR INITIATIVES. Emergence of voluntary investor initiatives as
hybrid between hard rules (direct laws and regulations) and soft rules
(moral suasion, stakeholder pressure).
• COLLABORATIVE. Pension fund investment happens within a
broader investment ecosystem. To increase pipeline of investment
opportunities, to increase precision of due diligence, to spread risks
in the deal, pension funds are co-investing leveraging DFI capital.
• GROW CREDIBILITY. Building credibility and authenticity. Growth
markets have high relational component, making trust earned
through relationships critical to investment confidence and conviction.

3. What do investors want?
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4. What do people of the world want?
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6. !6@SinCoESG I sincosinco.com I info@sincosinco.com
Making the case for sustainability 1/2
1. BETTER DECISIONS. Make better investment decisions,
reduce risk, better opportunities. May increase investment
performance. ESG performance studies reflect sustainability may increase returns. MSCI ESG tilts in listed
equity perform best for buying ESG "improvers" and shorting "laggards" *2008-12. Rational from leading/lagging
institutional investors in Shuffling Feet, SinCo for WWF, May 2013.
2. DIRECT BOTTOM LINE BENEFITS. Companies operate more
efficiency, contribute to bottom line. 67% return from listed equity
portfolio based on the Carbon Disclosure Leadership Index since
2006. 31% return by CDP Leadership Index's Global 500 peers
2006-2012. Eccles, Robert G., and George Serafeim. "The Performance Frontier: Innovating for a Sustainable
Strategy." Harvard Business Review (May, 2013).
3. COMPETITION FOR TALENT. Hire better people, millennials
greater interest in sustainability. 1. J.E. Hunter, F.L. Schmidt and M.K. Judiesch, “Individual
Differences in Output Variability as a Function of Job Complexity,” Journal of Applied Psychology 75, no. 1 (1990): 28–42.

7. !7@SinCoESG I sincosinco.com I info@sincosinco.com
Making the case for sustainability 2/2
4. INCREASE ON DEMAND SIDE FROM INSTITUTIONAL INVESTORS.
Long term horizon being tested. Integrating ESG factors has become
part of institutional investor due diligence, systemic view. "It is in non-financial data
that much of the information needed to formulate sound judgments resides" (Funston & Wagner, 2010).
5. CONTEMPORARY INTERPRETATION OF FIDUCIARY DUTIES.
Changing realities of role of fiduciary in professional investment
management, shaping of rules and regulations for investment and doing
business, and expectations of ESG factors.
6. INVESTOR LICENSE TO OPERATE. Investor response to
stakeholder expectations and monitoring of financial system.
demonstrating strong business and investment behavior reduces
barriers to accessing investment opportunities and regulatory hurdles to
doing businesses, especially in infrastructure deals. [Esty, Benjamin C., Carin-Isabel
Knoop, and Aldo Sesia. "Equator Principles, The: An Industry Approach to Managing Environmental and Social Risks." Harvard
Business School Case 205-114, January 2007.]
7. ETHICAL REASONS. Be on the right side of history, right thing to do.

8. Frameworks for ESG
Lessons from LA - the rules of
the game for investing in
emerging markets.
!8@SinCoESG I sincosinco.com I info@sincosinco.com
PHOTOCREDIT: Reuters/Getty Images 2013

9. !9@SinCoESG I sincosinco.com I info@sincosinco.com
Prudential investment regulations
New global best practice
• INVESTMENT PHILOSOPHY. ESG issues are in every investment decision. But
only some investment professionals proactively manage ESG for increased
opportunity set and reduced risks exposure.
• REGULATION. New rules for investment management in South Africa.
Regulation 28 of Pension Funds Act 24/1956 effective 1 January 2012.
• PREAMBLE "A fund has a fiduciary duty to act in the best interest of its
members whose benefits depend on the responsible management of fund
assets. This duty supports the adoption of a responsible investment
approach to deploying capital into markets that will earn adequate risk
adjusted returns suitable for the fund’s specific member profile, liquidity
needs and liabilities. Prudent investing should give appropriate
consideration to any factor which may materially affect the
sustainable long-term performance of a fund’s assets, including
factors of an environmental, social and governance character. This
concept applies across all assets and categories of assets and should
promote the interests of a fund in a stable and transparent environment."

10. Initiatives driving more proactive ESG
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11. !11@SinCoESG I sincosinco.com I info@sincosinco.com
Ruggie Principles
New global best practice
• Guiding Principles "Ruggie Principles" are "not intended as a tool kit, simply to be taken off the shelf
and plugged in. While the Principles themselves are universally applicable, the means by which they
are realized will reflect the fact that we live in a world of 192 United Nations Member States, 80,000
transnational enterprises, 10 times as many subsidiaries and countless millions of national firms,
most of which are small and medium- sized enterprises. When it comes to means for
implementation, therefore, one size does not fit all." [SOURCE: Guiding Principles on Business and
Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework: p.5]
• "23. In all contexts, business enterprises should:
• (a) Comply with all applicable laws and respect internationally recognized human rights,
wherever they operate;
• (b) Seek ways to honour the principles of internationally recognized human rights when faced
with conflicting requirements;
• (c) Treat the risk of causing or contributing to gross human rights abuses as a legal
compliance issue wherever they operate. [SOURCE: Guiding Principles on Business and
Human Rights: Implementing the United Nations “Protect, Respect and Remedy”
Framework:p.21]
• ESG EM Coverage by MSCI: 822 Securities across 21 countries, EM FF Adjusted Market Cap:
US$ 3 829 085 mln. FM FF Adjusted Market Cap: US$ 117 137 mln

12. !12@SinCoESG I sincosinco.com I info@sincosinco.com
Contemporary ESG issues for global mining
1. LICENSE TO OPERATE. Social licenses to operate, obtained through community
engagement and sustainability management, are ever more essential to mining
companies’ ability to run a successful mine.
2. NO EASY OPERATIONS. The industry is faced with many tough decisions.
Management at many companies must choose between layoffs or profits. Others are
forced to choose between ramping up production of low grade mines – the result
could mean higher carbon emissions, wastes, and costs - or move operations
deeper into regions with high uncertainty due to risks of corruption, social changes,
or sensitive environments that can block projects from going forward.
3. DE FACTO REGULATIONS. The increasingly scarce high grade projects are also
often in regions where safety and environmental standards need to be drastically
upgraded to meet international standards. Poor social and environmental
performances also significantly raise risks of resource nationalization and higher
payment demands.
4. CAN ROBOTS MINE? Labor cost inflation reaches double digits for many companies
and diminishes long term confidence that high margin mines in areas of unrest will
remain strong investments. Mining companies face additional risks of cost hikes
through increased regulatory pressure, expanding carbon regulations, and higher
costs for energy and supplies
SOURCE: MSCI ESG Mining Sector report, February 2013; Old Mutual Investment Group South Africa, 2013.

13. Investment in Zimbabwe? From why to how
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PHOTOCREDIT: ZCC, 2011

14. * of total number of listed companies in country
Total Companies Covered by Country
4036322824201612840
United States
3,369 (26.1%*)
Canada
292 (6.6%*)
Japan
1,779 (47.8%*)
UK
341 (17.9%*)
Australia
308 (15.5%*)
Brazil
121 (28.4%*)
China
1,081 (32.8%*)
Mexico
41 (28.5%*)
Russia
48 (3.8%*)
South Africa
114 (28.2%*)
Chile
23 (10.1%*)
Italy
59 (19.0%*)Spain
50 (24.9%*)
France
111 (8.9%*)
Germany
109 (8.0%*)
India
690 (17.1%*)
Sweden
68 (12.6%*)
Malaysia
69 (7.1%*)
New Zealand
16 (10.9%*)
S. Korea
244 (12.4%*)
03/27/2013Data as of
+
Increasing quantity and quality
of ESG ratings coverage
But differentiated ratings for E vs
S vs G , country averages
aggregate leaders/laggards.
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SOURCE: Total companies ESG coverage = 10,315. E=4,328/S=5,431/G=10,296. Bloomberg ESG, by permission, April 2013.

15. //ESGonBloomberg
PEER ANALYSIS
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Investors can compare a company against its peers on “Efficiency”. For example,
GHG emission per sales rather than absolute emissions.
All rights reserved. Bloomberg Professional Service

16. !16@SinCoESG I sincosinco.com I info@sincosinco.com
Investing beyond regulations
PROPARCO 2012 report on Private Equity investments in real economy.
"Committed to promoting the highest environmental and social standards".
EUR2.6bn, up 24% vs 2010.
1. People connected to telcoms
2. Jobs created
3. Pollution behaviour and reductions in greenhouse gases
4. Increased taxes paid
5. Access to finance
6. Projects improving environment and society
7. Shipping tons

17. !17@SinCoESG I sincosinco.com I info@sincosinco.com
Key messages
• GROWTH MARKETS. The business case for investing in global
emerging markets. Accessing growth via global majors versus local
majors, investments accessible in local or foreign jurisdictions.
• INVESTOR INITIATIVES. Emergence of voluntary investor initiatives as
hybrid between hard rules (direct laws and regulations) and soft rules
(moral suasion, stakeholder pressure).
• COLLABORATIVE. Pension fund investment happens within a
broader investment ecosystem. To increase pipeline of investment
opportunities, to increase precision of due diligence, to spread risks
in the deal, pension funds are co-investing leveraging DFI capital.
• GROW CREDIBILITY. Building credibility and authenticity. Growth
markets have high relational component, making trust earned
through relationships critical to investment confidence and conviction.

18. sustainable investment consulting
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• SinCo - sustainable investment consulting -
is a specialist sustainable investment
advisory boutique. We have no other focus,
we have no conflicts of interest. We build
investment conviction and competence
using ESG factors in investment systems.
• SinCo has a track record of building hard
answers to tough questions in sustainable
investment. Our clients are institutional
investors, UN agencies and international
NGOs, and stock exchanges.
• SinCo projects have included designing
sustainability indexes, expanding portfolio
research on ESG factors, and designing
ESG architecture across asset classes.
www.sincosinco.com
@SinCoESG
info@sincosinco.com

19. sustainable investment consulting
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DISCLAIMER
This ESG research by SinCo includes funds, firms and initiatives
that may be clients of SinCo, or the parent of, or affiliated with, a
client of SinCo. SinCo ESG research reports, articles and profiles
have not been submitted to, nor received approval from, the
United States Securities and Exchange Commission or any other
regulatory body. While we have exercised due care in compiling
the information, we make no warranty, express or implied,
regarding the accuracy, completeness or usefulness of the
information and assume no liability with respect to the
consequences of relying on the information for investment or other
purposes. In particular, SinCo ESG research is not intended to
constitute an offer, solicitation or advice to buy or sell securities.
Without limiting any of the foregoing and to the maximum extent
permitted by law, in no event shall SinCo have any liability
regarding any of the Information for any direct, indirect, special,
punitive, consequential (including lost profits) or any other
damages even if notified of the possibility of such damages. The
foregoing shall not exclude or limit any liability that may not by
applicable law be excluded or limited.
www.sincosinco.com
@SinCoESG
info@sincosinco.com

20. About AfricaSIF.org
Africa Sustainable Investment Forum
is an independent, Pan-African, not-
for-profit network, knowledgebase and
advocate promoting investment in
sustainable development across the
continent.
Launched in June 2010, the
AfricaSIF.org Project is run by
volunteers building a network of
institutions and individuals promoting
sustainable investment in Africa by
investors in public, private and
philanthropy sectors across asset
classes, countries and stakeholders
from our platform at www.africasif.org.
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