EXTRA FINANCIAL CRITERIA AND OTHER RISKS

THE COST OF CARBON

Dr. Matthew Kiernan, Chief Executive

mkiernan@innovestgroup.com

Susan McGeachie, Director

smcgeachie@innovestgroup.com

“Embedded in the challenge of climate change are both dangers and possibilities. Immense dangers for firms and investors who make bad choices, or no choices, about how to respond to the risks, and are then held accountable in the marketplace, the boardroom, or the courts; and immense possibilities for firms and investors to turn challenge into opportunity.”

Dr. John Holdren, Professor; Harvard UniversityExcerpt from Presentation at the 2005 Investor Summit on Climate Risk

New York City, May 10, 2005

CLIMATE CHANGE AS AN INVESTMENT ISSUE….

….FOR INSTITUTIONAL INVESTORS

Financial and competitive impacts on portfolio companies

Kyoto Protocol and European Trading System

Impacts in “low impact” sectors Impacts vary widely between sectors

CLIMATE RISK VARIES AMONG SECTORS

SAMPLE “CARBON BETA ” PORTFOLIO ANALYSIS

0% 5%

10% 15%

20% 25%

30% 35%

Aerospace

Air Freight

Auto Components

Autos

Banks

Beverages & Tobacco

Chemicals

Construction Materials

Diversified Financials

Electric Utilities

Electronics

Food & Drug Retailing

Gas Utilities

Industrial Conglomerates

Insurance

Integrated Oil & Gas

Metals & Mining

Surface Transport

Telecommunications

CARBON "COSTS" AS % OF 2003 NET INCOME

High Risk Portfolio

Low Risk Portfolio

AND WITHIN THE SAME SECTORS

HIGH CARBON RISK Sector LOW CARBON RISK

GENERAL DYNAMICS Aerospace UNITED TECHNOLOGIESUNITED PARCEL SERVICE INC Air Freight FEDEX CORPBRIDGESTONE CORP Auto Components DENSODAIMLERCHRYSLER AG Autos TOYOTA MOTOR CORPORATIONFORD MOTOR COMPANY Autos HONDA MOTOR CO., LTD.GENERAL MOTORS Autos RENAULT SABANK OF NOVA SCOTIA Banks ABN AMRO HOLDING N.V.DANSKE BANK A/S Banks DEXIABNP PARIBAS Banks HYPOVEREINSBANKWELLS FARGO & COMPANY Banks UBS AGPHILIP MORRIS COMPANIES INC. Beverages & Tobacco DIAGEO PLCPRAXAIR, INC. Chemicals BASF AGBAYER AG Chemicals DUPONTLAFARGE SA Construction Materials CEMEXJ.P. MORGAN CHASE & CO Diversified Financials ING GROEP N.V.ELECTRABEL SA Electric Utilities ENEL SPAENDESA S.A. Electric Utilities IBERDROLA, S.A.AEP Electric Utilities FPL GROUP, INC.SOUTHERN COMPANY Electric Utilities ENTERGY CORPORATIONXCEL ENERGY, INC. Electric Utilities TXU CORPSAMSUNG ELECTRONICS Electronics AGILENT TECHNOLOGIES, INC.CONAGRA FOODS, INC. Food & Drug Retailing SAINSBURY, J PLC

ALBERTSON'S Food & Drug Retailing CADBURY SCHWEPPES PLCWILLIAMS COMPANIES Gas Utilities CENTRICA PLCSTRYKER CORPORATION Health Care BAXTER INTERNATIONAL, INC.TYCO INTERNATIONAL LTD. Industrial Conglomerates SIEMENS AGALLSTATE CORP Insurance ALLIANZ AGCHEVRONTEXACO Integrated Oil & Gas BG GROUP PLCTOTAL FINA ELF S.A. Integrated Oil & Gas BPEXXON MOBIL Integrated Oil & Gas Statoil ASABHP BILLITON PLC Metals & Mining ALCAN INCMICRON TECHNOLOGY, INC. Semiconductors INTEL CORPORATIONKLA-TENCOR CORPORATION Semiconductors STMICROELECTRONICS NVBNSF Surface Transport CENTRAL JAPAN RAILWAY COCN RAILWAY COMPANY Surface Transport BAA PLCFRANCE TELECOM SA Telecommunications DEUTSCHE TELEKOM AGNTT CORP Telecommunications NTT DOCOMO INC.

WHO CARES ABOUT THIS?

THE DEMAND SIDE

Carbon Disclosure Project Institutional Investors Group on Climate

Change Investor Network on Climate Risk Investors Group on Climate Change

INVESTOR CONCERNS OF CLIMATE CHANGE IMPACTS IN ASIA

Climate change impacts can have a negative effect on existing economic structures in Asia:

– Agricultural productivity likely to suffer severely due to high temperature, severe drought and flood conditions and soil degradation.

– Aquaculture productivity likely to undergo dramatic changes as a result of temperature changes in water.

– Rise in sea level would cause submergence of large tracts of the vast Asian coastline, leading to a recession of flat sandy beaches.

– Ecology of mangroves and coral reefs around Asia likely to suffer severely.

– Impact of warmer weather on the Asian monsoon could lead to high inter-annual variation in rainfall characteristics.

CARBON RELATED PRODUCTS FOR INVESTORS

Carbon BetaTM BasketClimate Enhanced Bond Index

THE INVESTMENT LOGIC

SD performance is becoming increasingly critical to competitiveness, profitability & share price performance.

Current bond prices do not reflect climate change.

Scarcity of data creates market inefficiencies that investors can exploit.

ADDING THE CARBON BETA ANALYSIS

Energy intensity and fuel source mix Geographic locations of production facilities Product mix Company specific marginal abatement cost Technology trajectory Company-specific carbon risk management

capability

STRATEGY OBJECTIVES

Protect fiduciaries from hidden financial risks

Exploit mis-pricing opportunitiesGenerate excess returns Send a strong signal to companies

CARBON BETATM BASKET

Underlying base portfolio: a top-performing global active equities template from a world-class asset manager or investment bank, selected by both Innovest and the client

Base portfolio is then “tilted” using Innovest’s proprietary Carbon Beta™ platform to adjust both sector and individual stock exposures

Outperformance target of 4% - 5% per annum 50-100 names

PORTFOLIO CONSTRUCTION

Step 1: Stock Ranking Step 2: Risk Assessment Step 3: Innovest Carbon BetaTM Overlay Step 4: Portfolio Construction and Trading Step 5: Engagement

RISK CONTROL

Risk management is an essential part of the Fund’s investment strategy.

Portfolio diversification across regions, sector and industries Focus on total risk/return profile Multiple risk control guidelines

– Active risk: 3-5%– Region Weights: +/- 1%– Industry Weight: +/- 3%– Security Weight: +/- 3%– Turnover: 100%– Cash: 0-1%

CAPTURING THE CLIMATE DIVIDEND

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Jul2002Aug2002Sep2002Oct2002Nov2002Dec2002Jan2003Feb2003Mar2003Apr2003May2003Jun2003Jul2003Aug2003Sep2003Oct2003Nov2003Dec2003Jan2004Feb2004Mar2004Apr2004May2004Jun2004Jul2004Aug2004Sep2004Oct2004Nov2004Dec2004Jan2005Feb2005Mar2005Apr2005May2005Jun2005

Benchmark

Portfolio

CLIMATE ENHANCED BOND INDEX

Underlying base portfolio: leading investment manager’s index.

Base portfolio is then “tilted” using Innovest’s proprietary Carbon Beta platform to adjust both sector and individual stock exposures

1100 names Targeted tracking error: 10 basis points (.1%)

RISK CONTROL

Risk management is an essential part of the fund’s new index

Portfolio diversification across regions, sector and industries

Investors are fully invested across all industry sectors

“Climate tilts”: restricted to high-impact sectors only Maximum over/underweight position of any issuer:

25% Bottom decile of issues (highest net carbon risk)

removed from index

LOW TRACKING ERROR

Extensive back testing of the new climate enhanced bond index has confirmed that the new index closely replicates the risk and return characteristics of the mainstream bond index, while better reflecting the impact of climate risk, and also sending a clear message to major corporations about the importance of recognizing and managing this emerging risk successfully.

JULI vs JULI-E indices

95

96

97

98

99

100

101

7-Jul-0513-Jul-0519-Jul-0525-Jul-0529-Jul-054-Aug-0510-Aug-0516-Aug-0522-Aug-0526-Aug-051-Sep-058-Sep-0514-Sep-0520-Sep-0526-Sep-0530-Sep-056-Oct-0513-Oct-0519-Oct-0525-Oct-0531-Oct-054-Nov-0510-Nov-0517-Nov-0523-Nov-0530-Nov-056-Dec-0512-Dec-0516-Dec-0522-Dec-0529-Dec-05

juli index juli environ

CONCERNS OVER CLIMATE CHANGE GROWING AMONG INVESTORS

Mercer Investment Consulting report: A Climate for Change

Freshfields report on fiduciary duty CalPERS and CalSTRS sustainability and

clean tech investment strategy Growth potential in renewable energy stocks

“Over the long term, investments based on sustainability criteria are expected to outperform those based on traditional performance resources.”

Roderick MunstersChief Investment OfficerABP, Netherlands