Green Mountain SRI SummitSeptember 9, 2002 How Do Public Funds Choose Between SRI Strategies Presentation By: Meredith Miller Assistant Treasurer for Policy Office of the Connecticut State Treasurer

Choice of Venue 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

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

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

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

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 -Data to evaluate potential impact on fund of divestment of certain stock More than single issue screening not prevalent Public Funds can use SRI screening for several purposes -Data as overlay for corporate governance targeting Public Funds can invest some portion of assets into SRI mutual funds and/or relational investor funds

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

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

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

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)

What does it take to have an SRI Strategy? SEC disclosure should be pursued for human capital investments 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