Socially Responsible Bond Investment TBLI Conference, Frankfurt, Nov. 2–4, 2005 Eckhard Plinke Bank Sarasin & Co Ltd.

Socially Responsible Bond Investment TBLI Conference, Frankfurt, Nov. 2–4, 2005 Eckhard Plinke Bank Sarasin & Co Ltd.

Agenda Bank Sarasin & Co. Ltd Investment Style in Germany – Fixed Income is important Socially Responsible Bond Research at Sarasin Summary

Bank Sarasin & Co. Ltd

Investment Style in Germany – Fixed Income is important

Socially Responsible Bond Research at Sarasin

Summary

1. Bank Sarasin & C o. Ltd 1. Bank Sarasin & Co Ltd.

Bank Sarasin & Co. Ltd Swiss Private Bank, founded in 1841 Specialised in asset management, private banking and trading Approx. € 35bn assets-under-management More than 1,140 employees Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Luxemburg, Munich, Paris and Singapore. Asset Management, Products & Sales Trading & Logistics Private & Institutional Clients

Swiss Private Bank, founded in 1841

Specialised in asset management, private banking and trading

Approx. € 35bn assets-under-management

More than 1,140 employees

Headquarters in Basel; offices in Zurich, Geneva, Lugano, Dubai, Guernsey, Hong Kong, London, Luxemburg, Munich, Paris and Singapore.

Bank Sarasin & Co. Ltd: Your „Center of Competence“ for Sustainability More than EUR 1.6bn sustainable assets-under-management. One of the largest managers in continental Europe Independent More than 15 years of expertise in sustainability research and asset management with a stable team 17 international and interdisciplinary professionals with an average of 13 years of job experience Broad product range Proprietary database and rating system with information about around 900 companies and 170 additional bond issuers

More than EUR 1.6bn sustainable assets-under-management.

One of the largest managers in continental Europe

Independent

More than 15 years of expertise in sustainability research and asset management with a stable team

17 international and interdisciplinary professionals with an average of 13 years of job experience

Broad product range

Proprietary database and rating system with information about around 900 companies and 170 additional bond issuers

1. Bank Sarasin & C o. Ltd 2. Investment Style in Germany – Fixed Income is important

Asset Allocation in Germany: Bonds most important Institutional Investors („Spezialfonds“) 2004 (analysed 427 bn EUR out of about 530 bn EUR) Source: Handelsblatt, 9.12.2004 Retail Funds 2005* (418 bn EUR) Source: BVI 2005 *) excluding Real Estate Funds

SRI Funds: Focus on Equities (traditionally) Source: Bloomberg Retail SRI Funds Germany 2005 ( 98 funds) Source: BVI 2005 Retail Funds Germany 2005 ( 2392 funds)

1. Bank Sarasin & C o. Ltd 3. Socially Responsible Bond Research at Sarasin

Bonds – Variety of Issuers Traditional Focus of SRI Sarasin SRI Research Bonds „ Pfandbrief“ Ratings Asset Backed Bonds Institution Ratings Institution Bonds Country Ratings Government Bonds Company Ratings Corporate Bonds

Sarasin Sustainability Matrix ® : Common Frame

Company Rating: Example Unilever Sustainability Assessment: Companies

Country Rating: Philosophy Sustainability Efficiency Sustainability Level e.g.: per capita CO 2 emissions unemployment rate Low impact High impact Low High e.g.: $ GDP per MJ energy consumed Public health per $ of health care expenses Industrialisation Dematerialisation Developing Countries Industrialised Countries “ Sustainable” Countries Road to Sustainability = Efficiency Increases: Environment: Decoupling material welfare – environmental impact Society: Decoupling quality of life - material welfare

e.g.:

per capita CO 2 emissions

unemployment rate

e.g.:

$ GDP per MJ energy consumed

Public health per $ of health care expenses

Environment: Decoupling material welfare – environmental impact

Society: Decoupling quality of life - material welfare

Country Rating: Coverage and Grouping Grouping according to credit rating: 46 21 Rated Eligible for SRI Group 15 Emerging Countries 13 Core OECD Countries (high credit ratings)

Country Rating: Example Sweden Sustainability Level 0.0 1.0 2.0 3.0 4.0 5.0 Biodiversity Air / Climate Water Soil Energy Waste Personal Stress Marginalisation Human Rights Sustainability Level Sustainability Efficiency low high low high Sarasin Sustainability-Matrix ® Sweden Average of analysed countries Sustainability Assessment: Countries Sustainability Efficiency Air / Climate Water Energy Waste Institutional Frame Health Education Cohesion Income Public Debt Foreign Affairs

Country Rating: Example PR of China PR of China Average of analysed countries Sarasin Sustainability-Matrix ® Sustainability Efficiency Sustainability Level Sustainability Efficiency low high low high Air / Climate Water Soil Energy Institutional Frame Health Education Cohesion Income Public Debt Foreign Affairs Biodiversity Air / Climate Water Soil Energy Personal Stress Marginalisation Human Rights Sustainability Level

Public Financial Institution Rating: Principle high low Sustainability Level (Environmental and social compatibility of the institution’s mandate) high low Sustainability Efficiency (Sustainability of the institution in performing its mandate) Sarasin Sustainability- Matrix ®

Institution Rating: Example KfW Bankengruppe Sustainability Level Sustainability Efficiency

„ Pfandbrief“ Ratings: Principles Basic Principle: Rating of the collateral (“where the money goes”) Mortgage/ Real Estate Government Bonds Collateral Rating Approach Type of „Pfandbrief“ Rating of the banking group behind Mortgage (Hypotheken-Pfandbrief) Average country rating of the government bonds in collateral stock Public (Öffentlicher Pfandbrief)

Rating of Public Covered Bonds: Example Germany 60% Austria 4% Japan 1% USA 3% Spain 8% Italy 10% Belgium 14% Rating: Average rating (“center of gravity”) within the area of the Sarasin Sustainability-Matrix ® eligible for investment Exclusion Criteria: USA (3%) und Japan (1%) are excluded (limit: 10%)  this public covered bond would be eligible for investment Collateral

Rating: Average rating (“center of gravity”) within the area of the Sarasin Sustainability-Matrix ® eligible for investment

Exclusion Criteria: USA (3%) und Japan (1%) are excluded (limit: 10%)

 this public covered bond would be eligible for investment

Sustainability Assessment of Mortgage Covered Bonds Rating of the banking group which the issuer of the bond belongs to (e.g. Eurohypo > average of Deutsche Bank, Commerzbank, Allianz ) Kind of real estate is taken into account: financing of residential real estate is principally regarded as being unproblematic; financing of real estate for critical businesses (e.g. defence) is taken negatively into account Special conditions for an environmentally friendly construction etc. are taken positively into account

Rating of the banking group which the issuer of the bond belongs to (e.g. Eurohypo > average of Deutsche Bank, Commerzbank, Allianz )

Kind of real estate is taken into account: financing of residential real estate is principally regarded as being unproblematic; financing of real estate for critical businesses (e.g. defence) is taken negatively into account

Special conditions for an environmentally friendly construction etc. are taken positively into account

1. Bank Sarasin & C o. Ltd 4. Summary

Summary Fixed Income is the most important asset class for German institutional investors, while SRI has focussed on equity investment Variety of bonds requires variety of SRI assessment approaches (rating methods) > quite sophisticated and extensive SRI research What is SRI in bonds good for?: Contribution to Sustainable Development (can have a more direct impact than equity investment, e.g. development agencies) Reduction of financially relevant risks (e.g. link between social imbalances, indebtedness of countries and default risks of government bonds)

Fixed Income is the most important asset class for German institutional investors, while SRI has focussed on equity investment

Variety of bonds requires variety of SRI assessment approaches (rating methods) > quite sophisticated and extensive SRI research

What is SRI in bonds good for?:

Contribution to Sustainable Development (can have a more direct impact than equity investment, e.g. development agencies)

Reduction of financially relevant risks (e.g. link between social imbalances, indebtedness of countries and default risks of government bonds)