The Philanthropy Conference: EY Gibraltar

1. The Philanthropy Conference:EY Gibraltar How is the asset management industry catering for investors wanting sustainable returns from ethical investments? Gillian Lofts • 17 November 2013

2. Introduction • Investordemandforsustainable and ethical products has grown significantly in the last two decades. This presentation analyses the change in demand of the investor and the response by the industry We will cover : • The current trends of the asset management industry and their impact on the sustainable and ethical investment world • The significant growth of ethical investing and who is saying what about it • The root causes of this sector’s emergence and exponential growth rates • How it is being manifested day-to-day and what the future holds The Philanthropy Conference: EY Gibraltar

3. Our FS clients are responding to sustainability as a strategic issue that presents material risk as well as opportunity….. Three critical factors driving the importance of sustainability in Financial Services institutions: As the foundation for all other industries, FS is pivotal to enabling sustainable economic growth. However, until recently, it has lagged behind other industries in addressing sustainability as a strategic issue. The four issues below demonstrate how this is changing: • Massive financing requirement to deliver the transition to a low carbon ‘circular’ economy • Crisis of trust across the industry requires focus on rebuilding reputations around socio-economic contribution • Material un-priced social and environmental risks in asset portfolios and lending decisions • Business growth strategy • Government mandate • Solution v. responsibility • International standards

4. Global asset management landscape 55% of the world’s top 500 asset managers are based in the US; another 31% in Europe EMEA* Data for: 2011 (2010) (2009) AUM (US$ trillion): 22 (24) (25) % global share: 35% (37%) (40%) No. of managers: 156 (153) (173) Top markets by 2011 AUM* UK: US$ 4.6 trillion Germany: US$ 4.4 trillion France: US $4.4 trillion Americas* Data for: 2011 (2010) (2009) AUM (US$ trillion): 34 (34) (31) % global share: 54% (53%) (50%) No. of managers: 274 (266) (255) Top markets by 2011 AUM* US: US$ 30.2 trillion Canada: US $3.0 trillion Brazil: US$ 0.7 trillion Asia-Pacific* Data for: 2011 (2010) (2009) AUM (US$ trillion): 7 (7) (6) % global share: 11% (10%) (10%) No. of managers: 70 (81) (72) Top markets by 2011 AUM* Japan: US$ 5.3 trillion Australia: US $1.0 trillion South Korea: US$ 0.5 trillion • Asia-Pacific • Major APAC economies characterized by persistent and high economic growth in the last decade • Asia Pacific investment markets’ distinguished by their sheer diversity that makes each country a unique market • They range from large, mature, domestically focused markets such as Japan and Australia, to more outward-looking, expanding markets like Hong Kong and Singapore, to the emerging giants of India and mainland China • Americas • Outflows from money market funds and equity funds persistent since 2007 • Growth in fixed income funds and ETFs/passive funds • Concentration: 73% of the US mutual fund assets are in top 25 complexes • EMEA • Continued fragmentation of markets and products • Poor net flows • Structural changes and regulatory reforms *Source: Pensions & Investments / Towers Watson

5. The asset management industry is facing strong upheaval and change Brave new world • Chronically low interest rates, inflation risks, QE and European restructuring are all contributing to Risk on/Risk off becoming the new norm The industry finds it’s voice • Regulation abates but industry engagement with government, policy makers, tax authorities and regulators reaches a new high Look after the pounds • With costs going up and revenues going down, managers need a fundamental re-think of their cost models and sacred cows Shifting sands • Investors are seeking high yielding, low risk solutions and new sources of alpha • With regulations reinforcing distribution as king of the AM world this is an increasing area of strategic focus Pension blues • The pensions gap in Europe is estimated to be anywhere north of E2Tn • Supply of ‘At retirement’ and decumulation product is weak Innovate to survive • Leading asset managers are orienting around customers, looking to provide holistic solutions with an integrated service model • Search for scale/leverage • Expansion into new markets • Investment in new product is rising • Shifting asset class dynamics • Building new distribution channels • Creating new distribution JVs/partnerships • Potential for consolidation • The ‘banking sell’ off continues • Focus on costs • Regulation alone is expected to cost the industry $52Bn-$78Bn in the next 3 years • Retail ‘churn’ is estimated at 20-30% pa • Outsourcing new areas such as middle office and manufacturing • Standardising IT platforms • Investing in the distribution value chain • Establishing shared services infrastructure • Product portfolio management • Review of value proposition • Barriers to entry are going up and innovation in the industry will suffer as a result • Revenue re-plenishment is critical • Building customised solutions – oriented towards specific outcomes/timeframes • Increased transparency for investors • Evolving revenue models EMEIA FSO – Asset Management Update

6. Overview • How has the asset management industry responded to consumer demand for sustainable and ethical investment products? What? Why? How? Therefore … The Philanthropy Conference: EY Gibraltar

7. The Evidence Ethical Investing over the past 20 years Timeline of ethical investing in the UK 1984 1990 – 2000 2000 2001 2009 1989 2002 2010 2012 Friends Provident Stewardship Fund launched Over 50 ethical funds emerge with >£3bn invested Legal requirement for occupational pension scheme disclosure FTSE4Good Indices launched Yourethicalmoney.org launched World £199m $2.6tn $10.1tn £11bn UK 1995 2012 US $600m £3.7tn The Philanthropy Conference: EY Gibraltar

8. Investor behavioural drivers Business Scandal Return on investment Building a better working world Consumer demand and conscience Mass / social media The Philanthropy Conference: EY Gibraltar

9. Ethical, social and sustainable investment opportunities UN PRI Microfinance Corporate philanthropy Crowd funding Governance/stewardship Peer-2-Peer lending Impact investing Integrated reporting Green funds The Philanthropy Conference: EY Gibraltar

10. UN Principles for Responsible Investing The United Nations Principles for Responsible Investment (UN PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Developed by a group of large institutional asset owners in 2005, they were launched by Secretary-General Kofi Annan at the New York Stock Exchange in April 2006. To date, a total of 272 asset owners have signed up to the UN PRI, This accumulates to approximately thirty five trillion dollars. Institutions involved include Aviva, HSBC and BlackRock. The Philanthropy Conference: EY Gibraltar

11. Innovative financial industries • Microfinance • Crowd funding • Kiva • UK Crowdfunding Association The Philanthropy Conference: EY Gibraltar

12. Integrated reporting The integration of sustainability criteria into traditional financial analysis helps provide additional insights into a companies quality of management and future performance potential to generate long lasting value to investors • According to the DJSI, Australia & New Zealand Banking Group (ANZ) was the leading sustainable bank in 2013. This accolade was awarded due to: • Training programs developed for recruiting traditionally marginalised groups • Support of rural industry growth in the Pacific region, where it has 40% market share • The ‘money minded’ program, over 10 years and with 200,000 participants, focused on building people’s money management skills “This is a very important initiative that draws together the key actors across financial, environmental and social reporting. The concept of integrated reporting is coming of age and I am delighted to support this initiative”. Hans Hoogervorst, Chairman, International Accounting Standards Board The Philanthropy Conference: EY Gibraltar

13. Green funds UN objectives by 2030 according to Ban Ki Moon: To provide access to modern energy sources for the entire global population To double the rate of energy efficiency improvements and finally To double the market share that renewables command in the global energy mix. • In 2009, South Korea dedicated a $38bn fiscal stimulus package to green initiatives • 1m jobs created • Industries involved include energy, water and waste • China, Japan, US and Brazil following suit The Philanthropy Conference: EY Gibraltar

14. Therefore … • 884 SRI retail funds in Europe • €95bn assets under management • Represent 1.6% of overall retail fund market • Average fund size is >€100m • 92 SRI retail funds • €14bn assets under management • 1.5% market share • Largest fund – Stewardship Pension Fund (Friends Provident) - €1.5bn • 254 SRI retail funds • €40bn assets under management • 2.6% market share • Largest fund – BNP Paribas - €4.99bn The Philanthropy Conference: EY Gibraltar

15. Therefore … • “We contribute to society because we are successful”(Giving something back) • “We are successful because we contribute to society”(Creating shared value) The Philanthropy Conference: EY Gibraltar

16. Thank you