CUMBA CSR Conference 2011

Global Partnershipfor a Sustainable Future

Vincent KwanDirector and General Manager

11 May 2011

Changing the Society through Responsible Investment

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Contents

The Nature of a Corporation and Corporate Sustainability

Responsible Investment: A Driving Force for Corporate Sustainability

Corporate Sustainability Index (CSI): a Benchmark, a Standard, and a Platform

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Global Partnership for a Sustainable Future

Corporations Last

Governance

Social Responsibilities

Environmental Protection - Save the Earth

Corporations

Individuals

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Corporations Are Powerful

In Hong Kong

335,000 corporations in 2010*

2,560,000 employees in 2010*

74% of electricity consumption in 2010#

55% of disposal of solid waste at landfills in 2009^

Sources: *Quarterly Report of Employment and Vacancies Statistics – December 2010, Census and Statistics Department#Hong Kong Monthly Digest of Statistics, Census and Statistics Department^Monitoring of Solid Waste in Hong Kong - Waste Statistics for 2009, Environmental Protection Department

Corporation is a key stakeholder for developinga sustainable future for a society

The Nature of a Corporation and Corporate Sustainability

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Harmony or Conflict

Corporate Sustainability

(CSR, Governance, Environment)

Corporations

Poster: Sleeping with the enemy (1991) by 20th Century Fox

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The Rise of Capitalism

Money and FinanceSociety

貨幣金融社會

Financial Engineering

CapitalistSociety

資本主義社會

Trade and Capital

Agricultural/ Industrial Society

農/工業社會

Skills

2000 years of Economic and Social Development

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Theatrical release poster: Wall Street (1987) by 20th Century Fox

WALL STREET (1987)

“GREED IS GOOD.”- Gordon Gekko

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The Crisis of Capitalism

Crisis of Capitalism

Money and FinanceSociety

貨幣金融社會

Financial Engineering

CapitalistSociety

資本主義社會

Trade and Capital

Agricultural/ Industrial Society

農/工業社會

Skills

“Greed is Good”

Wall Street

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“Predatory lenders and unscrupulous brokers pushed

increasingly complex mortgages on unsuspecting buyers ……[it] placed these firms, the entire system, and ultimately all of us in grave

danger.” (pp. 65, 67)

- Henry Paulson

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Social Responsibility and Governance

?Rethinking of Capitalism’s

value and systemCrisis of Capitalism

Money and FinanceSociety

貨幣金融社會

Financial Engineering

CapitalistSociety

資本主義社會

Trade and Capital

Agricultural/ Industrial Society

農/工業社會

Skills

“Greed is Good”

Wall StreetOn the Brink

Henry Paulson

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Can we expect a corporation to embrace Corporate Sustainability voluntarily?

(The Body Shop website, 2011)

Examples:

Sanlu

The Body Shop

Starbucks

BP Tepco 東京電力

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5Cs of Sustainability

Corporation

Profitability / Survival Social Costs / Benefits

Corporate Sustainability Corporate Social Responsibility

Competition Community

Sustainable development goes nowhere without support from corporation

Responsible Investment:A Driving Force for Corporate Sustainability

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Three routes to achieve Corporate Sustainability

Corporate Sustainability

Through Regulation and Legislation

•CSR best practice•Environmental law•Employment law•Carbon trading

Through Corporation’s Initiative

•Company value and belief

Through Incentives

•Award recognition•Responsible Investment

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The power of investors in shaping corporation change

What does a corporation want to achieve? - Profit Growth- Higher Share Price- Widening Investors Base

Investor’s Power - Through voting right (less effective)- Through buy or sell decision

Responsible Investment is a driving force through providing incentive to a corporation for achieving

sustainable development

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Trend of Sustainable and Responsible Investment (SRI)

SRI in Europe, 2002-2009

Source: Eurosif European SRI Survey, 2010* Re-calculated according to the 2010 Core SRI definition.Note: Market data coverage is evolving. 8 countries were covered in 2002, 9 in 2005, 13 in 2007 and 14 in 2009.

Year

€5 trillion

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Trend of Sustainable and Responsible Investment (SRI) (Cont’)

Global professionally managed assets: USD52.6 trillion1

AUM benchmarked to Responsible or Sustainability Indexes / Mandates globally2: Over USD 10 trillion

SRI assets represent 17.6% of the total AUM in Europe3

SRI assets represent 12.2% of the total AUM in the US4

Sustainable investment in emerging markets has grown considerably in the past 5 years, to over USD 300 billion5

Sources:1. BCG Global Asset Management Report 20102. EUROSIF European SRI Survey 2010, covering the broader concept of sustainability, faith based, climate change, new energy investment,

data as of Sep 20103. EUROSIF European SRI Survey 2008, covering the broader concept of sustainability, faith based, climate change, new energy investment,

data as of Sep 20084. 2010 Report on Socially Responsible Investing Trends in the United States, Social Investment Forum5. Gaining ground. Integrating ESG factors into investment processes in emerging markets by IFC & Mercer, March 2009

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Can SRI Improves Returns?

Mercer Studies

Shedding light on responsible investment: Approaches, returns and impact November 2009

Demystifying Responsible Investment Performance with the Asset Management Working Group of the United Notions Environment Programme Finance Initiative, October 2007

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What are the Studies?

Source: Shedding light on responsible investment: Approaches, returns and impact by Mercer in November 2009

Objectives: Any impact on financial returns when corporations put emphasis on ESG factors

Method: Review of published academic reports

Number of Studies Reviewed:

16 studies in 200920 studies in 2007

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The Result

Year 2009 2007 & 2009

Total Studies 16 36

Positive 10 20

Neutral – Positive -- 2

Neutral 4 8

Neutral – Negative 2 3

Negative -- 3

ESG / Financial Return

Source: Shedding light on responsible investment: Approaches, returns and impact by Mercer in November 2009

Corporate Sustainability Index (CSI):a Benchmark, a Standard, and a Platform

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What a CSI can Do?

Benchmark for sustainable listed corporations with global standards

Base for investable financial products

Promoting sustainable development among companies, financial market and investors

Our effort will not help unless we have support from the community

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CSI: A Platform for ALL to achieve win-win situation

INCENTIVE is the key to encourage participation at all levels

Investors

Fund Managers

IndexCompilers

ListedCorporations

• Invest in sustainable companies• Incentive: - Stable and long term financial performance

• Provide a platform between investors and listed companies• Incentives: - Good PR

- Meeting market demand

• Participate into sustainability index annual review exercise• Integrate sustainability factors in business decision process• Incentives: - Joining the index

- Expanding Investors base

• Develop and promote financial products linked to Sustainability Index

• Incentives: - Attract fund AUM by meeting market demand- Good PR

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The Four Pillars of Corporate Sustainability

Sustainability Ratingse.g. RepuTex, GRI, ISO26000

Global Standards ☆Corporate Sustainability Indexe.g. Hang Seng Corporate Sustainability Index Series

Financial Industry

Responsible Investments

Investors & Asset Owners $

Real product

Incentives

Corporate Sustainability

Sustainable Corporations

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Sustainability Rating of our CSI

Source: RepuTex

RepuTex Methodology - Global ESG Assessment Factors

Hang Seng Indexes has commissioned an independent analytics and advisory firm RepuTex to carry out sustainability rating.

RepuTex’s principal assessment code is referred to as the International Framework.

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Positive Market Response on our CSI

Media and Opinion Leaders

“This is a very good concept and have been popular in US & Europe over 10 years ago… The index can provide a good benchmark for fund managers…” by Ricky Tam, Founder and Chairman of Hong Kong Institute of Investors on 16 Jul 2010 Hong Kong Daily News

“As more cases illustrate how charity and investment are intertwined, investors will warm to the idea but it will probably take time…” by Sally Wong, Executive Director of Hong Kong Investment Funds Association on 22 Jul 2010 SCMP

Fund Managers

Hang Seng Indexes is currently in contact with various fund managers to discuss the product development

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Positive Market Response on our CSI (cont’)

Constituent

Constituents have mentioned their inclusion in their reports and promotional channels

Hysan 2010 Corporate Responsibility Report

SHKP Quarterly3rd Quarter 2010

Representatives of the constituents and the officiating guests at the launchceremony for the Hang Seng Corporate Sustainability Index Series

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Sustainability Analysis of HK listed corporations

274 Hong Kong companies and 264 Chinese companies in total were analysed (note: dual- listed companies were classified as Hong Kong-stock companies).

Overall, 182 out of 274 (66%) Hong Kong companies passed RepuTex’s BBB- Rating (Moderate/Satisfactory), while 118 out of 264 (44%) mainland China companies passed BBB-.

Source: RepuTex ESG Analytics : Research Note

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Constituents of our CSI (HK-listed)

Hang Seng Corporate Sustainability Index

Number of constituents: 30

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Future Development of our CSI: How?

Hang Seng Corporate Sustainability Index

Hang Seng (China A) Corporate Sustainability Index

Hang Seng (Mainland and HK) Corporate Sustainability Index

Hang Seng Corporate Sustainability

Benchmark Index*

Hang Seng (China A) Corporate Sustainability

Benchmark Index*

Tradable Index

Sustainability Index for product

development

(Existing indexes)

Benchmark Index

Pool of companies with good

sustainability performance

(New indexes)

Tradability and Sustainability Screening

Select largest companies in terms of MV with top sustainability scores

*Tentative Index Name

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Future Development of our CSI: Why?

Enrich the index series and enlarge the constituent base

Include more MidCap and SmallCap companies

Maintain the existing tradable indexes for investable product development

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Know more about our CSI

http://www.hsi.com.hk/CorporateSustainability

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The Way Ahead

Promote the concept of Corporate Sustainability

Support the Corporate Sustainability Indexes

Embrace the Responsible Investment

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Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Hang Seng Indexes Company Limited accepts no liability whatsoever with respect to the use of this document or its content.

Changing the Society through Responsible InvestmentContents Global Partnership for a Sustainable Future Corporations Are PowerfulSlide Number 5Harmony or ConflictThe Rise of Capitalism Slide Number 8The Crisis of CapitalismSlide Number 10Social Responsibility and Governance Can we expect a corporation to embrace �Corporate Sustainability voluntarily?5Cs of Sustainability Slide Number 14Three routes to achieve Corporate SustainabilityThe power of investors in shaping corporation changeTrend of Sustainable and Responsible Investment (SRI)Trend of Sustainable and Responsible Investment (SRI) (Cont’)Can SRI Improves Returns?What are the Studies?The ResultSlide Number 22What a CSI can Do?CSI: A Platform for ALL to achieve win-win situationThe Four Pillars of Corporate Sustainability Sustainability Rating of our CSI Positive Market Response on our CSIPositive Market Response on our CSI (cont’) Sustainability Analysis of HK listed corporationsConstituents of our CSI (HK-listed)Future Development of our CSI: How?Future Development of our CSI: Why?Know more about our CSIThe Way AheadSlide Number 35