Sustainable 60 Workshop Strategy & Governance: an investor’s view -

1. Sustainable 60 WorkshopStrategy & Governance: an investor’s view-

2. Agenda • Why Responsible Investment part of our Strategy? • Why is sustainability important to investors? • What role for investors – • Investment analysis • Investor oversight • Communicating with investors

3. Why do we focus on Responsible Investment? • We must manage the Fund in a manner consistent with: • Best-practice portfolio management; • Maximising return without undue risk to the Fund as a whole; • Avoiding prejudice to New Zealand’s reputation as a responsible member of the world community • We must establish policies, standards and procedures that cover: • ethical investment including avoiding prejudice; and • use of voting rights • We believe that: • Responsible asset owners should have concern for ESG issues • Improving ESG can improve long-term financial performance

4. Standard for Investors: UNPRI

5. Standards for companies Corporate Governance guidelines UN Global Compact • Why these benchmarks? • Universally recognised • Signatories include our peers, investment managers and investee companies • Unlikely to be superceded

6. Why is sustainability important to investors? • View in two ways : Long-term themes & company analysis • Themes include: • Increased sensitivity to climate change by the state and the individual • Natural resource scarcity - energy, food and water • Demographics & emerging markets • Company analysis includes: • management quality, brand, skills (IP), resources (people, capital, natural) & regulatory environment • management of risks & opportunities from environmental, social and governance themes • Less clarity around how this is priced in from an investors perspective • Also impact it has on other parts of portfolio – universal owners perspective • May not be called sustainability - but that is just a definitional issue

7. Warning signs leading up to BP disaster Charges for Manipulation Of gas market Violations Of Clean Water Act Alaska Oil Spill Penalties From the OSHA Texas Refinery Accident Thunder Horse Accident Gulf of Mexico Oil spill Texas Refinery Accident Azerbaijan Gas leak Grangemouth 2000 Warning signs prior to the BP disaster “ Source: Yahoofinance.com “ Up until April 19 (the day before the Deepwater Horizon explosion), his [BP’s] performance was excellent. An investor close to BP quoted by The Financial Times, July 25th 2010

8. KKR Green Portfolio Results Program cumulative results for 2008-2009

9. KKR Portfolio - value growth PRIMEDIA: Paper Use Reduction Notes: See methodology section for description of avoided and efficiency calculations. The total % change is aggregate change between the baseline year and the most recent year of data. All other % changes are expressed as year-over-year.

10. Investment Analysis – growing role of ESG research • Basic data and ratings • Bloomberg • MSCI • Array of specialists • Integration into investment analysis • Sell-side: HSBC; Goldman Sachs; JB Were; Citi • Buy-side: varies with active stock pickers more likely those with quantitative models • But ratings could change that: e.g. MSCI ESG rating seeks to reflect three key questions: • What are the key ESG risks and opportunities applicable to each sector? • Do companies have ESG risk management strategies commensurate with the ESG risks they face? • Do companies have strategies to capture potential opportunities in the ESG space? • UNPRI is a driver but also an indicator of changing perception of fiduciary role

11. Investor ownership & oversight Why have an ownership strategy? • Responsible asset owners should have concern for ESG issues • Improving ESG practice can improve long-term financial performance • Institutional investors are “universal owners” and through collaboration can reduce value destroying practices across markets • Exercising rights as shareholders helps to reduce agency risk and improve shareholder oversight Activities • Governance & Voting – to encourage high governance standards across markets & asset classes • Engagement –ask companies to address significant breaches of standards & encourage best practice • Substantial owner (e.g. NZ companies) – engagement on material ESG issues with companies in which we have a significant stake

12. Sell Side e.g. E.A.I Institutional Investors Investment Managers Advisors In-house Manager Equities Bonds Other Governance Policy Standards e.g. UN PRI Proxy Voting RI Research Investment landscape can get complicated Asset Owner Fund Manager Research Provider Assets Government and Regulators Beneficiaries Investment Mandates Engagement – investors & companies Voting Portfolio Monitoring Collaborative Initiatives e.g. CDP

13. Communicating with investors • Integrate into normal communication channels – annual report; website, meetings • Board and CEO main points of contact – ensure key issues are on Board agenda • Strategy and governance investors main focus – and bottom line • Develop strategy, KPIs, targets and report e.g. GRI • Consider third party verification/assurance • Monitor investor trends on ESG factors

14. Sustainability is about: Building trust with stakeholders Being prepared Being opportunistic Thematics