Responsible investments SRI Report June 2010 Content 2 About KLP 4 Dear reader 6 How to be a responsible investor 8 KLP as an environmentally responsible developer 10 Finalist in environment prize 11 Active management and sustainable growth 12 Impressions from China 13 Focus on oil sand 15 Vote for the majority of our holdings 16 Voting 18 Dialogue, observation and exclusion 19 Observation 21 Improved labour relations 24 Excluded companies Companies excluded for: 25 Human rights 28 Labour rights 29 Environment 30 Corruption 31 Weapons production 35 Good performance of ethical investments About KLP KLP as a fi nancial Asset classes Assets under Both active KLP Obligasjon I funds. These investments are services company The KLP Group manages management and passive KLP Obligasjon Global I long-term commitments. KLP’s Kommunal Landspensjons- 258.1 Billion Norwegian KLP Kapitalforvaltning and management KLP Obligasjon Global II private equity program is still kasse (KLP) is one of Norway’s kroner, divided between KLP Fondsforvaltning, both KLP Statsobligasjon in an early stage of develop- largest life insurance compa- several asset classes. subsidiaries of KLP, manage wKLP Fondsforvaltning is ment. As one of the larger nies. The company provides around 175 Billion Nor- Norway’s leading index fund Norwegian investors, KLP is pension, fi nancing and KLP Kapitalforvaltning and wegian kroner in fi nancial provider. We off er global and KLP AksjeNorge often represented in these insurance services to the local KLP Fondsforvaltning are instruments for KLP (March regional index funds in the KLP AksjeNorge Indeks I-II funds’ investor committees. government sector and state responsible for all of KLP’s 31, 2010), and its subsidiar- US, Europe and Asia within KLP AksjeNorden These committees function as health enterprises, as well as internal asset manage- ies, as well as other institu- the MSCI World Developed KLP AksjeEuropa Indeks I-II a link between the funds and other businesses both in public ment, while KLP’s Finance tional and private customers. Universe. We also have a KLP AksjeGlobal Indeks I-IV its investors. and private sectors. Department controls asset In total, we have 3.600 Norwegian index fund which KLP AksjeUSA Indeks I-II allocation in the common customer relationships in our tracks the Oslo Børs Bench- KLP AksjeAsia Indeks I-II External management KLP’s main product is portfolio. funds. KLP Fondsforvaltning mark Index. In addition to private equity, occupational pensions and is Norway’s third largest fund Please read more about our KLP has also invested in pension fund services. More management company. Our index management takes funds on www.klp.no. other external equity and 11.3% 13.1% than one in eight Norwegians Property Equities advantage of a secure and fi xed income funds, which have their pensions with KLP. 14.1% automatic system. Our are mainly used in areas The company also provides Lending 23.4% eff ective management and where KLP does not have Short- insurance services both to in- term economies of scale, allow us internal expertise. dividuals and the public sector. bonds to provide low-cost asset KLP Eiendom is one of the management. Annual Microfi nance largest property managers in management fees are as low KLP has made a commitment Norway. KLP provides a wide 34.3% 3.7% as 0.10 percent. to invest 75 Million Nor- Long-term Liquidity, 72% 23% range of lending services and bonds money World Norway wegian kroner in the Norwe- has established its own bank market gian Microfi nance Initiative Regional distribution of KLP’s equity in 2009, KLP Banken. investments by market value (NMI) over the coming years. Investments in the main portfolio (March 31, 2010). 5% The mutual ownership model (the common portfolio) by asset class Nordic All of KLP’s investments are (March 31, 2010). region of the parent company, in subject to KLP’s Policy for which a customer is also an The KLP Other Responsible Investments. owner, means that KLP must always supply products and mutual funds management solutions in consultation Fixed income funds: Private equity with its customers. KLP was KLP Aktiv Rente KLP invests in private equity founded in 1949 and has a KLP Rentefond II (including venture capital), total of 700 employees. KLP Pensjon I-II mainly through private equity 2 SRI REPORT 2010 PAGE 3 Dear reader, For During the past six months, we have travelled to China and to the oil sand areas in Canada to learn more about the challenges and opportunities faced by Norwegian companies in China and about the extraction of oil from the tar sands. This report includes travel logs the days from these trips. During the spring, we have also focused We were extremely proud to hear in April on strategy development. We work in an this year that KLP is one of six fi nalists to come. relatively new fi eld – responsible investments nominated for the Nordic Council’s Nature – for which there are very few established and Environment Prize. The reason for KLP’s standards, research or traditions which clearly nomination is our initiative to develop the defi ne what has to be done, how to do it, Sustainable Value Creation project. The how much to do and what performance to decision as to who will win this prestigious expect. Consequently, KLP and like-minded prize is being made at the time of writing. organisations are constantly striving to develop this fi eld and we are to a large The fundamental concept behind Sustainable extent playing a role in setting the standard Value Creation is a collaboration between for responsible investments. investors in order to achieve the initiative’s goal. As such, if KLP were to win the prize, it One result of this work is the introduction would be shared with numerous Norwegian of a new criterion for exclusion and dialogue and Swedish investors who have supported which we have defi ned as breaches of and played a part in developing Sustainable business ethics. The new criterion is based Value Creation (Bærekraftig verdiskaping in on the fact that we often face expectations Norwegian and Hållbart värdeskapande in as shareholders to react to actions or Swedish). behaviour which are considered censurable, irresponsible or immoral. This issue does not In conclusion, we would like to thank all our involve the environment or social problems business colleagues for their eff orts and hope however, but shareholder discrimination, you keep on reading! insider trading, unacceptable competition restriction etc. With this new criterion, our aim is not to exclude more companies, but to enter into discussions with companies, hoping to encourage them to change their behaviour Jeanett Bergan and prevent similar situations in the future. Head of Responsible Investments 4 How to be a responsible investor 3 tools Our fi rst and foremost responsibility is to meet our fi nancial obligations. KLP manages 258 Billion Norwegian kroner and more KLP’s responsible investment strategy than a half of a million Norwegians have their pensions with KLP. Active ownership and engagement It is our responsibility to enhance long-term value. However, we are Exclusions not indiff erent as to how we achieve this goal. Sustainable investments There are two rationales for KLP having a The rights of individuals in situations of > Sustainable Value Creation Sustainable investments strategy for responsible investments. First, war or confl ict > Controversial Countries Engagement KLP believes in combining profi t with other we do not want to contribute to violations Other fundamental ethical norms > Carbon Disclosure Project (CDP) gains. By considering the environment, of international norms. We want companies people and communities, investment risk to comply with the minimum standards that KLP engages in dialogue with companies in Also read about: can be reduced and/or a higher profi t can the international community has agreed breach of these conduct based criteria. > Dialogue, observation and exclusion be created. upon. (page 18) > Norwegian Microfi nance Initiative KLP also have product based exclusion > Active management and sustainable Second, we assert that sustainable busi- criteria. KLP do not invest in companies A direct way for a shareholder to infl uence growth (page 11) ness practices will reap long-term rewards. producing: a company is voting at annual general Pension fund providers, such as KLP, are Weapons violating humanitarian principles meetings. International norms long-term investors, and as such, we gain (e.g., nuclear weapons, landmines and > KLP’s and the KLP mutual funds’ voting Our strategy is based on internationally little from companies’ short-term returns, cluster bombs) activities (page 15–17) recognized principles. KLP is a member of if they damage long-term performance. To Tobacco the UN Global Compact and our exclusions operate responsibly and sustainably is also To sell the stocks – the last resort will primarily be due to complicity with UN an eff ective risk management strategy. We use three tools for infl uencing com- KLP will not compromise ethics for profi ts. conventions or the OECD’s Guidelines for panies and society towards sustainable In 2002, KLP was the fi rst Norwegian life Multinational Enterprises. Conduct based development. These are active ownership insurance company to establish a compre- and product based criteria and engagement, exclusion, and sustainable hensive ethical investment policy which KLP is also a signatory of the UN Principles Our engagement and exclusions address investments. encompasses its entire fi nancial investment for Responsible Investments (UNPRI) and a sustainable business conduct in line with universe. has made the commitment to incorporate international norms and conventions in the Active ownership and engagement environmental, social and governance following areas: In addition to dialogue on the areas men- Divestment will be a last resort when issues into our investment decision-making Human rights tioned above, we are working with a number violations are severe or systematic, and processes and ownership practices.