How Do Public Funds Choose Between SRI Strategies

1. How Do Public Funds Choose Between SRI Strategies Presentation By: Meredith Miller Assistant Treasurer for Policy Office of the Connecticut State Treasurer

2. In the public sector, SRI strategies can be pursued through- Office of Public Official or Pension/ Cash Funds or both Examples of Office Strategies are financial literacy programs and Individual Development Accounts- both require mandatory financial education An example of Pension Fund Strategy is filing shareholder resolutions An example of Pension Fund Strategy and Office Strategy is a Linked Deposit Program Choice of Venue

3. Factors Influencing Office Programs • The policy priority of Public Official • Available Funds • CT uses agreement with Fleet Bank to fund financial literacy and community development programs • Ability to serve as Catalyst with No Funds • CT Conference on Women and Money-with State Street and the YWCA

4. Factors Influencing Office Programs • Power of the Purse • CT contract with vendors requiring disclosure of responsible corporate citizenship • CT Community Reinvestment Program – Quasi linked deposit program with banks • Emerging Domestic Equity Program – Standards for investment managers to give broker dealer business to CT based minority and women owned firms

5. Factors Influencing Pension / Cash Programs • Board Governance • Is the Public Official Sole Fiduciary or member of a board? • What is the board composition and openness to SRI? • Regulatory and Policy Guidelines • Legislative Mandates (e.g., tobacco, reincorporating offshore, MacBride) • Policy Guidelines (e.g., fund proxy and investment guidelines • Division of labor between those responsible for investing the funds and those responsible for corporate governance

6. Public Funds and SRI Screening Strategy • Some funds have screened based on their own initiatives including CALPERS for emerging markets and New York State for tobacco • More than single issue screening not prevalent • Public Funds can use SRI screening for several purposes • Data to evaluate potential impact on fund of divestment of certain stock • Data as overlay for corporate governance targeting • Public Funds can invest some portion of assets into SRI mutual funds and/or relational investor funds

7. Factors Influencing Office Programs • Private equity strategy of investing in state or in discrete markets • Loans for mortgages of public employees • Affordable Housing

8. Public Funds and Shareholder Advocacy • Corporate Accountability definition must be expanded to include SRI principles • Public Funds need data to support the economic rationale for activism in this area • Better education about European requirements for SRI • Coalition Efforts

9. Public Funds and Shareholder Advocacy • Issues for Connecticut Funds • Diversity / relocations and Diversity Board Project • Global labor and human rights workplace standards • Environmental Issues • Offshore reincorporating • SRI Funds need to join other corporate governance groups

10. What does it take to have an SRI Strategy? • A view that local and global activism can be pursued and still be consistent with fiduciary and prudence standards • Broadening of definition of corporate responsibility to include accounting / financial integrity issues along with environment, diversity, labor rights, etc. (Responsible business practices)

11. What does it take to have an SRI Strategy? • Merrill Lynch Principles calls for investment managers to review corporate governance principles of companies they review and report on • NYSE calls for means for shareholders to meet with independent board members • SRI Funds should lead the pack in disclosing proxy voting or advertising that they do • SEC disclosure should be pursued for human capital investments