Perception Snapshot - Esg Factors

PERCEPTION SNAPSHOT ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) FACTORS AND THE BUY-SIDE The Perception Team within Corporate Advisory Services garners feedback and insights through conversations with the buy-side and sell-side. Recent feedback from 25 global buy-side investors reveals to what extent environmental, social, and governance (ESG) factors affect investment decisions. KEY TAKEAWAYS • • •

Eighty-four percent of participants evaluate ESG criteria to some degree when making an investment decision. Twenty-four percent of the respondents focus on corporate governance as opposed to all ESG issues equally. Only 16% do not consider ESG principles at all in their investment criteria.

Given the increase in popularity of environmental issues, it is not surprising that an overwhelming majority of the respondents evaluate ESG criteria when making an investment decision. Eighty-four percent of those asked consider ESG issues to some degree when investing, with 16% saying it is a key factor. Most of the respondents that favor positive ESG criteria when making an investment believe that quality management and good ESG principles go hand-in-hand. An income value investor notes, “I will not buy a company if I do not like management. Most of the time good management will have good ESG.” While a majority of the participants say it is a low or moderate consideration, many investors are beginning to incorporate ESG principles into their investment process as a measurement for the overall quality of management, their credibility, transparency, and communication strategy. Increasingly, investors are considering sustainability reports, corporate governance ratings, carbon disclosure, geopolitical issues, labor standards and other social and environmental practices. A core growth investor who uses ESG as a criteria comments, “If a company’s management is perceived as poor or not communicating well with the Street, it is definitely something we are aware of and it may preclude us when investing in a company over the long-term. The quality metrics for a company, namely its communication and credibility, are very important.” In contrast, only 16% of the respondents say that ESG does not play a role in their investment criteria and that a company’s policy toward ESG only becomes a factor when it hinders a company’s ability to generate high returns for clients and/or shareholders. SELECT QUOTES “We do take some ESG factors into account, such as who is on the board and whether they are looking after shareholders’ interests. We also look at carbon trading and other things, as they are forming part of our decision.” – Australian Growth Investor “We are not focused on ESG unless it is a real issue in terms of how a company is doing business. For instance, if a company had business operations in Sudan, that would be an issue.” – U.S. GARP Investor

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“ESG only plays a role to the extent that it is an overhang on the stock. There is no moral component to investing. We are value neutral when it comes to our investment decisions, but we are not value neutral in our lives. We have a fiduciary duty to our clients, to the people who give us money to manage to maximize returns, which means that we can not be limited by our own personal morality. If I see a cigarette company that looks interesting I may invest in it even though I might not like it personally.” – U.S. Hedge Fund Investor “I do not consider environmental or social factors when making investment decisions but I do factor in corporate governance. I want to make sure companies are doing things legally, as we learned from Enron. I usually want to own honest management teams.” – U.S. Core Value Investor “ESG is about a 5% consideration, as long as it does not impinge a company’s ability to earn money. A company’s ability to make money is number one, therefore a company does not want to do anything to upset that. The key is, is it delivering on metrics and anything that stops it from doing that is a negative. If you are the cleanest company in the world but you are losing money, then I do not want to talk to you either.” – U.S. Deep Value Investor “I am convinced that companies that follow the philosophy of social and economic responsibility are performing better in the long-term than those that do not.” – European Core Growth Investor “That goes along with management in my mind and how management conducts themselves. You do not want to be invested in a company that does not have good corporate governance and does not have the environment in mind. There is always a debate in the energy space but certainly we do not view it as an inherent conflict to have the environment in mind when operating a company and certainly corporate governance is key. We are in effect giving our capital to the management team, therefore, we have to trust that they will do the right thing for all stakeholders involved.” – U.S. Yield Investor “Corporate governance is something that is not usually an issue until it is an issue. If there was a major corporate governance issue then we would care about it, but typically most companies are decent from a corporate governance standpoint.” – U.S. Core Value Investor “Yes, ESG is a criteria but other people at my firm look at that and give us a ranking. They look at sustainability reports, and they compare it between companies within the same sector.” – European Core Growth Investor

RELATED REPORTS (available on IRHub, which can be accessed through Thomson ONE Investor Relations www.thomsonone.com): Shareholders, Hedge Funds & Private Equity: Sustainability – Is Green the New Black (December 2008) Shareholders, Hedge Funds & Private Equity: Green Investing (February 2008) IR Best Practices: Corporate Responsibility – Disconnect Between Corporations and Investors (June 2007)

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For more information on our Perception Study service offering or how your company’s investor relations team, management team, and Board of Directors can receive formal investor feedback, please contact: Robert K. Nagle, CFA Senior Director, Head of Perception Team Thomson Reuters – Corporate Advisory Services Tel: (646) 822-6364 [email protected] About Thomson Reuters Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, scientific, healthcare and media markets, powered by the world’s most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 50,000 people in 93 countries. Thomson Reuters shares are listed on the New York Stock Exchange (NYSE: TRI); Toronto Stock Exchange (TSX: TRI); London Stock Exchange (LSE: TRIL); and Nasdaq (NASDAQ: TRIN). For more information, go to www.thomsonreuters.com. About Corporate Services Maximize the value of your company with our suite of corporate solutions across the Investor Relations, Corporate Communications, Treasury and Corporate Finance functions. Leveraging more than two decades of experience serving the global corporate marketplace, our solutions are designed to increase the efficiency and effectiveness of your daily workflow to help you reach business decisions quickly and with confidence. Backed by knowledgeable client service professionals dedicated to proactive outreach and training, Thomson Reuters is the partner of choice for more than 6,000 corporations worldwide.

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