Corporate Social Responsibility (CSR) Annual Report, to 31 March 2005

1. Corporate Social Responsibility (CSR) Annual Report, to 31 March 2005 Fidelity’s Policy on Corporate Social Responsibility • Fidelity believes that high standards of corporate social responsibility (CSR) make good business sense and have the potential to protect and enhance investment returns. Consequently, our investment process takes social, environmental and ethical issues into account when, in our view, these have a material impact on either investment risks or returns. • We recognise and support the view that social, environmental and ethical best practice should be encouraged as long as the potential for financial return is not reduced. We favour companies committed to high standards of CSR and to the principles of sustainable development. • We do not screen out companies from our investment universe purely on the grounds of poor social, environmental or ethical performance. Instead, we seek to engage with the businesses in which we invest on behalf of our clients, in order to discuss these issues. We use the information gathered during these meetings both to inform our investment decisions and to encourage corporate managements to make progress with their procedures and attitudes. We strongly believe that this is the most effective way to improve the attitude of business towards CSR. Fidelity’s Four-Stage Process for CSR Analysis & Engagement • The CSR Analyst identifies priorities for engagement, typically focused on companies where we perceive that environmental, social and ethical issues could have a material impact on shareholder value. These priorities are discussed with the relevant research analysts. • Background research is undertaken on specific issues through dialogue with brokers and other interested parties (such as non-governmental organisations [NGOs]). • The CSR analyst holds meetings devoted solely to CSR issues with companies. • The findings from these meeting are reviewed by the CSR and research analysts and future engagement objectives are agreed.

2. Corporate Social Responsibility Annual Report, to 31 March 2005 Issue: Responsible gambling We met GamCare, a leading UK charity working with people addicted to gambling, to learn about its views on best practice. We held discussions with Hilton (owner of Ladbrokes), William Hill and Stanley Leisure. All companies demonstrated a good understanding of the negative impacts of gambling and are active supporters of GamCare. We did, however, identify varying standards of staff training and auditing, with Ladbrokes emerging as a sector leader. Ladbrokes has trained staff at all levels on its responsible gambling policies and has a programme of six-monthly internal audits and annual external audits (carried out by GamCare) to ensure that policies are being effectively implemented. Promoting responsible practices in online gambling is presenting challenges for all operators, especially with regards to age verification. We encouraged Hilton and William Hill to continue their efforts to improve their systems and to provide facilities for customers suffering from gambling addictions to voluntarily exclude themselves from websites, a facility already available in betting offices. Issue: Waste Not Want Not The EU Waste Electrical Equiment (WEEE) Directive, due to implemented in August 2005, will make retailers of electrical goods responsible for collecting items for recycling. Many retailers, including Tesco and Matalan, have already developed reusable transit packaging. Indeed, Matalan invested £1 million in its system to recycle packaging from its stores and expects to quickly recoup the cost. Discussions with Tesco highlighted the need to design lighter-weight easily-recyclable product packaging. Tesco is also researching bio-degradable packaging for organic produce. We were encouraged to learn that retailers are monitoring the WEEE Directive closely, with possible product take-back schemes, as well as estimating the costs of compliance. Dixons and Kesa’s Comet division already have close relationships with charities and commercial firms that either refurbish used goods or can dispose of them appropriately. The construction industry has a reputation for generating large amounts of waste. However, we were learnt that Bellway had achieved a 15% reduction in the number of skips used between 2003 and 2004, saving on landfill tax, skip hire and transport costs. Issue: Responsible broadcasting & publishing standards Media companies need to be aware of ethical and social issues. To succeed, they must be cognoscente of changing audience diversities. Fidelity took part in a consultation with the leading companies to identify key indicators of corporate responsibility. A number of companies we met with have taken initiatives to reflect diversity in their programming. BSkyB has included more channels for the Asian community and both ITV and TF-1 reflect diversity in the casting of popular dramas.Moreover, ITV has made it a priority to recruit ethnic minorities into senior management. We also discussed the importance of clearly disclosed editorial policies with commitments to accuracy and impartiality.  This is particularly important for programmes which tackle controversial subjects.  While most companies have editorial codes of conduct, few publish performance measures to prove compliance. All the broadcasters we met with are working to educate their programme development teams. For example, BSkyB provides training for editors on how to reflect disability positively in programming and Reuters has an ethics training programme for journalists that aims is to empower staff to make their own decisions. Issue: Responsible drinking The alcohol industry currently benefits from voluntary self-regulation. However, if alcohol-related anti-social behaviour persists, the government may impose additional controls. Allied Domecq has conducted sector-leading work to instil its responsible drinking code within its business culture. All of its marketing campaigns carry a sensible drinking message, scrutinised by an independent advertising review board. However, we encouraged the company to work more with the pub companies selling its products to ensure that their promotional activities also reflect best practice. Elsewhere, Luminar has expressed support for minimum pricing, which would encourage venues to differentiate themselves by the quality of service and entertainment rather than price. All the companies acknowledged the importance of a close working relationship with local authorities and police. Indeed, Luminar withholds part of the bonus paid to its venue managers until it receives a favourable report from the local licensing officer. We encouraged all pub companies to improve disclosure of their policies. In particular, the industry should communicate directly with customers on sensible drinking.

3. Issue: Climate change – a very real challenge for the extractives industry We were reassured to learn that climate change is being taken extremely seriously at board level within all the companies we spoke to. The associated risks and opportunities are being assessed and incorporated into strategic planning. ENI emphasised that its core business was based on fossil fuels, so reducing carbon intensity is its primary challenge. Gas is seen as one solution, with new gas power stations significantly more efficient. BHP, Xstrata and Rio Tinto recognise that they need to improve the environmental performance of coal if their business is to be sustainable for the long term. Technologies being researched include ‘clean coal’ power generation and carbon sequestration, the storage of carbon dioxide emissions in underground geological structures. Rio Tinto highlights products, such as aluminium for light weight energy saving vehicles, which help to improve energy efficiency and may therefore contribute to competitive advantages under greenhouse gas regulations. Total has developed a solar power business and a leading position in the bio fuels industry. We encouraged all companies to diversify away from fossil fuels. Issue: Ensuring employee welfare in high risk areas The recent upsurge in global terrorism has increased the risks faced by companies operating in prone areas, particularly those employing westerners. Security risk assessments and disaster recovery systems have always been a part of standard operating procedures for the companies we spoke to, especially for companies involved in oil and gas exploration. BP, which has long-standing experience in operating in high risk areas, has an extensive programme of staff training and support. BG has signed up to international Voluntary Principles on Security & Human Rights. We were encouraged to learn that Amec is also considering its position on this standard, especially given the increased security focus required for its operations in Iraq. Standard Chartered has experience in working in high risk locations (it was the first international bank to go back to Afghanistan after the fall of the Taliban regime). Involvement in initiatives such as the Iraq Trade Bank has increased the bank’s global risk profile and security procedures are now subject to close monitoring by the Board. In Zimbabwe, both Standard Chartered and Barclays are committed to both a continuing presence and the support of their local staff and customers. Corporate Social Responsibility Annual Report, to 31 March 2005

4. Corporate Social Responsibility Annual Report, to 31 March 2005 All of the companies agreed that more training is needed to give underwriters and product development staff the necessary knowledge so that they can take environmental risks into account. We were pleased to see commitments to address this issue. Issue: Telecommunications & customer safety We discussed customer safety with Vodafone, MM02, BT, Telefonica and Deutsche Telekom, all of whom are funding independent scientific research on the potential health risks from Electro Magnetic Frequency (EMF) radiation. We emphasised the importance of operating to a single set of global standards, even in countries where there is currently little public concern. We discussed the importance of engaging with consumers to help them better understand the issues and the risks. Another area of concern is the distribution of unsolicited adult material, especially to children, through both the internet and internet-enabled mobiles. MM02 is developing new products and services to protect children from receiving pornography or being targeted by paedophiles. This includes moderating chat-rooms and developing a ‘walled garden’ product offering high quality sites suitable for children. Others, such as BT, are offering products which block unsuitable material. Once companies have adequate age verification systems, there will be scope for them to take advantage of the potentially lucrative market for gambling and adult content. Issue: Managing social, ethical & environmental risks in the supply chain It is now commonplace for a wide range of goods to be sourced from suppliers in the developing world. We had discussions with the Ethical Trading Initiative (ETI), a non-profit organisation which seeks to identify and promote good practice in labour standards. Food producers and retailers are increasingly being linked with poor labour standards in agriculture. Issues range from alleged child slavery in cocoa production to the exposure of Kenyan flower-pickers to harmful pesticides. All the companies we met with were committed to working with suppliers to monitor standards and seek improvement where necessary. Whilst all carried out supplier audits, the quality of these audits varied. Adidas and Cadbury Schweppes were notable in their use of a risk assessment model to ensure audits focus on products and regions where there is the greatest risk of poor performance. These two companies are working with industry partners to take advantage of combined resources and influence in addressing what are often very complex problems. We discussed the balance between taking advantage of buying power whilst also dealing with accusations of bullying suppliers. While Tesco and Morrison are committed to working in partnership with suppliers, they have yet to convince campaign groups such as Friends of the Earth. Issue: Pricing environmental risk into insurance Discussions with insurers focused on the way that environmental and social risks are integrated into underwriting and product development. Sector leaders such as Aviva and Axa are using their advanced understanding of environmental risk to develop innovative new products. Aviva uses flood plain mapping for more precise risk assessment in its home insurance business. Axa is working closely with corporate customers to advise them on ways to reduce environmental risk, benefiting both Axa and the customer. While these initiatives are encouraging, we were disappointed that even the sector leaders were unable to provide detailed information on the way that risks such as climate change have affected premiums to date. Zurich seems to be at an early stage in developing its approach to corporate responsibility. We emphasised the importance of considering environmental and social risks on a systematic basis within its underwriting and product development activities.

5. We found no immediate plans to transfer production as the companies are clearly very sensitive to the risks associated with ill-judged sourcing decisions. We were encouraged that all were working on developing long-term relationships with their suppliers and wanted to ensure their names were not associated with poor working practices. Both Matalan and Tesco are members of the Ethical Trading Initiative (ETI); whilst the others were not members, many of them follow the ETI code of conduct aimed at improving the working lives of poor people. Issue: Company initiated engagement It is encouraging to see that companies are taking CSR more and more seriously and are becoming increasingly proactive in their approach. Over the past twelve months, Fidelity has been approached by a significant number of companies and working groups looking for feedback with regard to their CSR strategy. For example we were asked to take part in a stakeholder consultation exercise performed by KPMG on behalf of 12 members of the Media CSR Forum: AOL UK, BBC, EMI, GMG, ITV, Pearsons, Reed Elsevier, Reuters, Sky, T&F Informa, United Business Media and WPP. The main objective of the consultation was to receive feedback from key stakeholder groups as to our viewpoint on the core CSR issues for the sector. Corporate Social Responsibility Annual Report, to 31 March 2005 Issue: Environmental & Social Risks Facing the Construction Industry We contacted a number of construction companies in order to review how they respond to the CSR challenges for the sector. Barratt Developments and Taylor Woodrow discussed EcoHomes and improving community areas through providing playgrounds and pedestrian/cyclist-friendly road designs. Taylor Woodrow has priced the cost of using EcoHomes standards in all of its new buildings, while Barratt is looking into the feasibility of bringing all its housing stock up to EcoHomes ‘good’ rating. Health & safety was also a common theme, with the companies seeking to implement schemes to measure and improve their performance in this respect. In the UK, increased awareness has led to a fall in the number of accidents. However, the continued use of subcontractors and overseas workers to fill the current skill shortage could threaten the improvement. Balfour Beatty spoke of apprenticeship schemes and sound health & safety policies as a response to this issue. The cost of development was also highlighted as increasing as building and construction companies are required to include social housing, meet environmental requirements or regenerate land, allowing the use of brownfield sites. Companies developing policies and expertise in this area will achieve competitive advantage. In view of this, ACS is producing its first CSR report since its merger with Dragados, which will homogenise data across the two companies. Issue: The Effect of the dissolution of the Multi-Fibre Arrangement on Retailers’ sourcing strategy The MFA provided the basis on which industrialised nations were allowed to restrict imports from developing countries (as the labour intensive nature of this industry favoured cheaper producing nations). Every year countries agreed bi-lateral quotas – the quantities of specified items which could be traded between them. A study by the Ethical Trading Initiative listed Bangladesh, Sri Lanka and Cambodia as countries likely to lose out from the end of the agreement, whilst both China and India were expected to benefit. Other potential beneficiaries included countries with short lead times such as Eastern Europe, Mexico and North Africa. We spoke to Matalan, Tesco, French Connection, Blacks Group, Hennes & Mauritz (H&M) and Peacock Group to establish whether they had changed or were planning to review their suppliers as a result of the ending of the MFA.