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  • 1. Agenda •  Role of the ESG Indices in impact investing •  ESG Indices space and variety •  Index philosophy and selection of parameters •  Relevance versus reliability (S&P Approach)PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 1
  • 2. Why ESG Indices? •  ESG index investing is a viable option for “active passive” investors who want to make an impact –  They can generate enhanced financial returns –  Simultaneously promote corporate citizenship –  It is a relatively simple, cost-effective and objective tool –  Moreover, as market participants incorporate the ESG information, the impact on returns will increase going forward –  The indices also provide investors with a powerful engagement platformPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 2
  • 3. Rapid Expansion of ESG Indices Globally Launches of emerging markets sustainability indices1 (Total number = 19**) •  26 Global ESG  Index families  •  8 regional ESG  Index families  •  35+ country‐ specific ESG  indices*  *See some examples in the Appendix Source: Esty Environmental Partners’ Research **See full list in the Appendix Investments into ESG Indices are rapidly growing, but sEll small: less than  $40 billion, or 0.5% of the esEmated AUMs of passively managed funds  PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 3
  • 4. Sustainability Index Market Challenges:the “Leaky Pipe” While Sustainability Indices have the potential to deliver value to investors, market challenges along the value chain can cause value to leak out Sustainability Indices Value Chain Index Investors providers ESG data providers Companies 1 2 3 4 Potential Investor Value Investor Investor Investor Sustainability Data Sourcing Data Analysis Intent & Index Value Framework Communication and Metrics Market ChallengesSource: Esty Environmental Partners’ Research, S&P IndicesPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 4
  • 5. ESG Indices Philosophies & Technologies Various Approaches  Negative Selecting Tilting screening sectoral based on Composite Best-in- analytical Various Perspectives ESG Normalizing Class criteria within industries or      IncorporaEng factor analysis or  Ethical not not  Investors need to carefully differenEate  between philosophies of various ESG indices in  Environmental order to choose the one capturing tangible  factors that really lead to sustainable  performance!  PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 5
  • 6. ESG Parameters’ Dilemma: Relevance vs. Reliability ESG Parameters measure the companies’ performance in the areas of:   Social  Environment  Governance  Responsibility  Weights Weights Weights ESG Score  Type of  Relevance  Reliability  Measurability  Parameter  Performance  High  Low  Low/Moderate  Policies  Moderate  Moderate  Moderate  Disclosure  Low/Moderate  High  High  6PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.
  • 7. What Relevance of Parameters Means Capturing ability to mitigate risks Unveiling growth potential Financial  Product innovaEon  Legal  Labor  ProducEvity  ReputaEonal  Resource  efficiency  OperaEonal  Brand  recogniE on  PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 7
  • 8. Relevance: S&P ESG India Historical Performance“Source: S&P Indices and India Index Services & Products.  Data as of May 31, 2011.  Charts are provided for illustrative purposes only. This chart may reflect hypothetical historical performance.  Please see the Performance Disclosure at the end of this document for moreinformation regarding the inherent limitations associated with back-tested performance.PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 8
  • 9. Relevance: S&P/Hawkamah ESG Historical Performance“Source: S&P Indices and India Index Services & Products.  Data as of May 31, 2011.  Charts are provided for illustrative purposes only.  Thischart may reflect hypothetical historical performance.  Please see the Performance Disclosure at the end of this document for moreinformation regarding the inherent limitations associated with back-tested performance. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 9
  • 10. Relevance: Transparency and Market Value 7 2 R = 0.18 6 5 P/B Ratio 4 3 2 1 0 20% 30% 40% 50% 60% 70% 80% 90% T&D Score Source: Standard & Poor’s Transparency & Disclosure Study of Russian Companies, 2009 Transparency & Disclosure (T&D) of ESG parameters measure the level of awareness which markets and companies possess on important issues. Information for analysis is obtained from public sources such as annual reports and other disclosures R2 - Determination CoefficientPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 10
  • 11. Examples of Parameters: Environment Parameter  Type of  Relevan Reliabili Measur Parameter  ce  ty  ability  Amount of waste produced, in  Performance  3  1‐2  2  relaEon to revenue  Amount of environment‐ Performance  3  1  2  related R&D expenses per year  Voluntary reducEon  Policies  2  2  2  requirements for gas emissions  and waste disposal  Disclosure of absolute and  Disclosure  1  3  3  relaEve numbers of GHG  emissions and other polluEons  3 = High; 2 = Moderate; 1 – Low The methodology is the property of S&P Indices, Standard & Poor’s and will be published along with the launch of the S&P ESG Global BMI Index seriesPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 11
  • 12. Examples of Parameters: Social Parameter  Type of  Relevanc Reliabili Measur Parameter  e  ty  ability Whether the companys  Performance  3  1‐2  2 acEviEes generate posiEve externaliEes for the community  Rates of injury, occupaEonal  Performance  3  1  2 diseases and other work‐related fataliEes Procedures in place to receive,  Policies  2  2  2 record and address stakeholder demands Disclosure of rates of accidents  Disclosure  1  3  3 and professional diseases  3 = High; 2 = Moderate; 1 – Low The methodology is the property of S&P Indices, Standard & Poor’s and will be published along with the launch of the S&P ESG Global BMI Index seriesPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 12
  • 13. Examples of Parameters: Governance Parameter  Type of  Relevan Reliabili Measur Parameter  ce  ty  ability  Percent of non‐execuEve and  Performance  3  2  3  non‐affiliated directors  Existence of large shareholders’  Performance  3  1  2  related business interests  Whether internal audit  Policies  3  2  3  department reports to the  audit commifee of the board   Disclosure of management  Disclosure  1  3  3  remuneraEon policy and levels  3 = High; 2 = Moderate; 1 – Low The methodology is the property of S&P Indices, Standard & Poor’s and will be published along with the launch of the S&P ESG Global BMI Index seriesPROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 13
  • 14. Summary: Index Setup for Impact Investing Index  philosophy  /Scoring  guidelines  Engageme Eligibility /  nt with  weighEng  companies  criteria  Impact  ETFs /  Back‐ Mutual  tesEng to  funds  prove  launch  Alpha  Communi‐ caEon to  investors PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 14
  • 15. Performance Disclosure • The inception date of the S&P ESG India Index was January 31 2008 , at the market close. All information presented prior to the index inception date is back-tested. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Complete index methodology details are available at www.indices.standardandpoors.com. • The inception date of the S&P ESG Pan Arab Index was February 1 2011, at the market close. All information presented prior to the index inception date is back- tested. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. Complete index methodology details are available at www.indices.standardandpoors.com. • Past performance is not an indication of future results. Prospective application of the methodology used to construct the S&P ESG India Index, S&P ESG Egypt Index and S&P ESG Pan-Arab Index may not result in performance commensurate with the back-test returns shown. The back-test period does not necessarily correspond to the entire available history of the index. Please refer to the methodology paper for the index, available at www.standardandpoors.com for more details about the indices, including the manner in which they are rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations. It is not possible to invest directly in an Index. • Also, another limitation of hypothetical information is that generally the index is prepared with the benefit of hindsight. Back-tested data reflect the application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities (or fixed income, or commodities) markets in general which cannot be, and have not been accounted for in the preparation of the index information set forth, all of which can affect actual performance. • The index returns shown do not represent the results of actual trading of investor assets. Standard & Poor’s maintains the indices and calculates the index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of theses fees and charges would cause actual and back-tested performance to be lower than the performance shown. In a simple example, if an index returned 10% on a US $100,000 investment for a 12-month period (or US$ 10,000) and an actual asset- based fee of 1.5% were imposed at the end of the period on the investment plus accrued interest (or US$ 1,650), the net return would be 8.35% (or US$ 8,350) for the year. Over 3 years, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.10%, a total fee of US$ 5,375, and a cumulative net return of 27.2% (or US$ 27,200).PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 15
  • 16. General Disclaimer • This document does not constitute an offer of services in jurisdictions where Standard & Poor’s Financial Services LLC (“S&P”) or its affiliates do not have the necessary licenses.  All information provided by S&P is impersonal and not tailored to the needs of any person, entity or group of persons.  S&P receives compensation in connection with licensing its indices to third parties.   Any returns or performance provided within are for illustrative purposes only and do not demonstrate actual performance.  Past performance is not a guarantee of future investment results. • It is not possible to invest directly in an index.  Exposure to an asset class represented by an index is available through investable instruments based on that index.  S&P and its affiliates do not sponsor, endorse, sell, promote or manage any investment fund or other vehicle that is offered by third parties and that seeks to provide an investment return based on the returns of any S&P index.  There is no assurance that investment products based on the index will accurately track index performance or provide positive investment returns.  S&P is not an investment advisor, and S&P and its affiliates make no representation regarding the advisability of investing in any such investment fund or other vehicle.  A decision to invest in any such investment fund or other vehicle should not be made in reliance on any of the statements set forth in this document.  Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle.  Inclusion of a security within an index is not a recommendation by S&P to buy, sell, or hold such security, nor is it considered to be investment advice. • S&P does not guarantee the accuracy and/or completeness of any S&P index, any data included therein, or any data from which it is based, and Standard & Poor’s shall have no liability for any errors, omissions, or interruptions therein. S&P makes no warranties, express or implied, as to results to be obtained from use of information provided by S&P and S&P expressly disclaims all warranties of suitability , with respect thereto. While S&P has obtained information believed to be reliable, S&P shall not be liable for any claims or losses of any nature in connection with information contained in this document, including but not limited to, lost profits or punitive or consequential damages, even if it is advised of the possibility of same. • S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities.  As a result, certain business units of S&P may have information that is not available to other S&P business units.   S&P has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process. S&P and its affiliates provide a wide range of services to, or relating to, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries, and accordingly may receive fees or other economic benefits from those organizations, including organizations whose securities or services they may recommend, rate, include in model portfolios, evaluate or otherwise address. • Copyright © 2011 by Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies. All rights reserved.   Redistribution, reproduction and/or photocopying in whole or in part is prohibited without written permission. S&P S&P INDICES, and STANDARD & POOR’S are registered trademarks of Standard & Poor’s Financial Services LLC. ,PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 16
  • 17. Thank you. For questions, please contact: Julia Kochetygova Senior Director S&P Indices +7-495-783-4025 Julia_kochetygova@standardandpoors.com Analytic services and products by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivity of each analytic process. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process.PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 17
  • 18. Appendix: the ESG Index UniversePROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 18
  • 19. ESG Indices Coverage 26 Global  8 Regional  35+ Country  Index  Index  Indices  families  families  Dow Jones  Dow Jones  S&P ESG India  Sustainability  Sustainability Asia‐ Index  World Index  Pacific Index  SSE Social  FTSE4Good Global  S&P Pan‐Arab ESG  Responsibility  Benchmark Index  Index  Index  Australian SAM  MSCI ESG Indices  FTSE4Good   Sustainability  Europe Index  Index  S&P ESG Indices  MSCI Pacific ESG  (underway)  KRX SRI Index  Index  … … …PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 19
  • 20. Geographic Coverage of Emerging MarketsSustainability Indices Global (2 indices) •  ECPI Ethical Emerging Markets Tradable Equity Index Regional (2 indices) •  S&P/IFCI Carbon Efficient Index •  CEE Responsible Investment Universe Index Country Specific: Central and South •  S&P/Hawkamah ESG Pan-Arab Index America (3 indices) •  BM&FBovespa Corporate Country Specific: Asia (9 indices)  Sustainability Index (ISE) – Brazil •  Brazil Carbon Efficient Index – Brazil •  OWW Responsibility SRI Index Series – Malaysia (and  •  BMV Sustainability Index – Mexico2 other countries)  •  S&P ESG Indi Index – India  •  Dow Jones Sustainability Korea Index – South Korea  Country Specific: Middle East/Africa •  SRI‐KEHATI Index – Indonesia  (3 indices) •  SSE Social Responsibility Index – China  •  Johannesburg Stock Exchange Socially •  CSI ECPI ESG China 40 Index – China  Responsible Investment Index - South Africa •  S&P/EGX ESG Index –Egypt •  Hang Seng Corporate Sustainability Indexes China  •  Istanbul Sustainability Index – Turkey1 •  Bursa Malaysia ESG Index – Malaysia1  1. Index in development, as of June 2011 2. Index is launched, but not published, Source: Esty Environmental Partners’ Research as of June 2011PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s. 20