SRI June 2009 Eng

Responsible investments
SRI report June 2009
Contents
4 About KLP 6 Dear reader sponsible investor 8 How to be a re subject of the year 10 Say on pay on ethics 12 Governance a business in Burm g gin 13 Challen eful information us es uc od pr rting 14 Climate repo ts tm its first inves en 15 NMI: Ready for s ng ral meeti 17 Voting at gene sion rvation and exclu se ob e, gu alo Di 20 mpanies 22 Reinstated co anies mp co d de clu 25 Ex sion: Reasons for exclu hts rig n ma Hu 28 30 Labour rights 31 Environment 33 Corruption uction or sales 34 Weapons prod ns ts of the exclusio 37 Financial eec
About KLP
KLP as a nancial services company Asset classes
KLP manages 202 Billion Norwegian Crowns, dispersed among several asset classes (see diagram below). KLP Kapitalforvaltning and KLP Fondsforvaltning are responsible for all of KLPs internal asset management, while KLPs Finance Department controls asset allocation.
11% 11%
Lending
Kommunal Landspensjonskasse (KLP) is one of Norways largest life insurance companies. The company provides pension, nance and insurance services to the local government sector and state health enterprises, as well as other businesses both in public and private sectors. KLPs main product is occupational pensions and pension fund services. More than one in eight Norwegians have their pensions with KLP. It also provides insurance services both to individuals and the public sector. KLP Eiendom is one of the largest property managers in Norway. KLP provides a wide range of lending services and will open its own bank in 2009. The mutual ownership model of the parent company, in which a customer is also an owner, means that KLP must always supply products and solutions in consultation with its customers. KLP was founded in 1949 and has a total of 700 employees.
Assets under management
Property
6%
Equities
22%
KLP Kapitalforvaltning and KLP Fondsforvaltning, both subsidiaries of KLP, manage around 155 Billion Norwegian Crowns in nancial instruments for KLP (December 31, 2008), and its subsidiaries, as well as other institutional and private customers. In total, we have approximately 1,500 unit holders in our funds. KLP Fondsforvaltning is Norways third largest fund management company.
Shortterm bonds
36%
Long-term bonds
14%
Liquidity, money market
Investments in the main portfolio (the common portfolio) by asset class (December 31, 2008).
Both active and passive management

We provide both active and passive equity and xed income funds, as well as hedge funds. All funds comply with KLPs Policy for Responsible Investments. KLP Fondsforvaltning is Norways leading index fund provider. We oer global and regional index funds in the US, Europe and Asia within the MSCI World Developed Universe. We also have a Norwegian index fund which tracks the Oslo Brs Benchmark Index. Our index management takes advantage of a secure and automatic system. Our eective management and economies of scale, allow us to provide low-cost asset management. Annual management fees are as low as 0.10 percent.
The KLP mutual funds
Fixed income funds: KLP Aktiv Rente KLP Rentefond II KLP Pensjon I-II KLP Obligasjon I KLP Obligasjon Global I KLP Obligasjon Global II KLP Statsobligasjon Equity funds: KLP AksjeNorge KLP AksjeNorge Indeks I-II KLP AksjeNorden KLP AksjeEuropa Indeks I-II KLP AksjeGlobal Indeks I-IV KLP AksjeUSA Indeks I-II KLP AksjeAsia Indeks I-II Please read more about our funds on www.klp.no.
Other management
Private equity KLP invests in private equity (including venture capital), mainly through private equity funds. These investments are long-term commitments. KLPs private equity program is still in an early stage of development. As one of the larger Norwegian investors, KLP is often represented in these funds investor committees. These committees function as a link between the funds and its investors. External management In addition to private equity, KLP has also invested in other external equity and xed income funds, which are mainly used in areas where KLP does not have internal expertise. Micronance KLP has made a commitment to invest 75 Million Norwegian Crowns in the Norwegian Micronance Initiative (NMI) over the coming years. All of KLPs investments are subject to KLPs Policy for Responsible Investments.
74%
World
Norway
20%
6%
Nordic region
Regional distribution of KLPs equity investments by market value (May 13, 2009).
SRI REPORT 2009 PAGE 5
Dear reader,
Regardless of whether it is a matter of excluding companies or voting at general meetings, our customers and other stakeholders will know what we are doing. In this update, it is a pleasure to announce that several companies are readmitted to KLPs portfolios.
As long as KLP has had a responsible investment strategy, openness has been fundamental. Each half-year since 2002 we have announced which companies are excluded from our investments and why. We believe it is about taking responsibility for our choices, with a genuine desire and aim that this will lead to change. It is therefore a particular pleasure that with this update of the list we can in fact welcome as many as seven companies back into our circles. KLP has been in dialogue with several of the companies. We believe that in this way these companies take responsibility, engage in the matter, listen to their shareholders and demonstrate that they do not wish to be associated with or involved in matters worthy of criticism. That is precisely the aim of KLPs work in this area! During the rst half of 2009 it was our aim to more extensively exercise KLPs and the KLP mutual funds voting rights at general meetings of Norwegian listed companies. We believe that in this work openness is also an important prerequisite for our customers and other stakeholders condence in us both as capital owners and asset managers. On KLPs website you can read about how we vote at general meetings in companies quoted in Norway, the principles upon which we act, as well as those cases in which we have voted against a boards recommendations to its general meeting.
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KLP and KLPs mutual funds are minority owners in listed companies. This means that our direct inuence is not always so great. Nevertheless we believe that by explaining our views and arguments we promote good corporate governance in the market. In addition we believe that openness helps to create a healthy and constructive debate that will move the work forward both for shareholders and companies. Corporate governance and ethics are complex questions that seldom have totally clear cut answers. By publishing this report we wish to display what we stand for as a responsible investor and owner, as well as what we are doing to live up to our ambitions. Excluding companies from our investments is only one tool that we have available. Exercising ownership rights is another. Enjoy the report!
Jeanett Bergan Head of Responsible Investments
One in eight Norwegians have their pensions with KLP.
KLP OG SAMFUNNET SIDE 7
How to be a responsible investor

Our rst and foremost responsibility is to meet our nancial obligations. KLP manages 202 Billion Norwegian Crowns and more than a half of a million Norwegians have their pensions with KLP. It is our responsibility to enhance long-term value. However, we are not indierent as to how we achieve this goal.
There are two rationales for KLP having a strategy for responsible investments. First, we do not want to contribute to violations of international norms. We want companies to comply with the minimum standards that the international community has agreed upon. Second, we assert that sustainable business practices will reap long-term rewards. Pension fund providers, such as KLP, are long-term investors, and as such, we gain little from companies short-term returns, if they damage long-term performance. To operate responsibly and sustainably is also an eective risk management strategy. We use three tools for inuencing companies and society towards sustainable development. These are active ownership and engagement, exclusion, and sustainable investments.
We are working with a number of key initiatives in which KLP engages with companies. The purpose of these initiatives is to promote a responsible business conduct that is sustainable in the long-term. > Sustainable Value Creation (page 12) > Controversial Countries Engagement (page 13) > Carbon Disclosure Project (page 14) We are also engaging in dialogue with companies on responsible and sustainable business conduct. We work systematically in order to avoid exclusions and to be able to reinstate excluded companies in our investment portfolios. > Dialogue, observation and exclusion (page 20)
To sell the stocks the last resort
Active ownership and engagement
The most direct way for a shareholder to inuence a company is voting at annual general meetings. KLP and KLPs mutual funds exercise their voting rights. > Voting (page 10 and 17)
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KLP will not compromise ethics for prots. In 2002, KLP was the rst Norwegian life insurance company to establish a comprehensive ethical investment policy which encompasses its entre nancial investment universe. Our last resort is excluding companies from our investment universe. We exclude companies when violations are severe or
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KLPs responsible investment strategy Active ownership and engagement Exclusions Sustainable investments
systematic, and these companies seem unwilling to change or improve their behaviour. Our exclusion criteria are based on international norms. That is, we exclude companies that are associated with breaches in UN and other international conventions on human rights, labour rights, environment and corruption. Furthermore, we do not invest in companies involved in the production of weapons which violate basic humanitarian principles (e.g., nuclear weapons, landmines and cluster bombs). Finally, we do not invest in the tobacco industry. > Reasons for exclusion (page 28)
tool
International norms
Our strategy is based on internationally recognized principles. By joining the UN Global Compact, we committed ourselves to: n Support and respect the protection of internationally proclaimed human rights. n Respect labour rights, including freedom of association, the right to collective bargaining, anti-discrimination, and the elimination of forced labour and child labour. n Promote environmental responsibility. n Work against corruption. We also expect companies to act in accordence with the OECDs Guidelines for Multinational Enterprises. KLP is a signatory of the UN Principles for Responsible Investments (UNPRI) and has made the commitment to incorporate environmental, social and governance issues into its investment decision-making processes and ownership practices, as well as to follow the other UNPRI principles. For KLP, the UNPRI is an important forum for cooperating with other likeminded investors on important responsible investment issues.
Sustainable investments
KLP believes in combining prot with other gains. By considering the environment, people and communities, investment risk can be reduced and/or a higher prot can be created. Performing this systematically, requires decisions to be based on a solid, nancial basis. We are gradually gaining a better understanding of sustainable investments, and strongly believe that this is important for the future way of managing assets. > Norwegian Micronance Initiative (page 15)
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VOTING AT GENERAL MEETINGS
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Say on pay subject of the year

Shareholders ought to be able to vote on remuneration. This demand is being raised at many general meetings this season. In Norway it is a statutory requirement and remuneration is the subject on which KLP most frequently votes against the board.
In the USA, high bonus payments have been discussed for several years, but this year, in the aftermath of the nancial crisis, many shareholder proposals on the issue have carried the day. Shareholders want to have a say on pay. The fact that managment received big bonuses while it at the same time became evident that companies were not solid enough, was strongly criticised. Last year there were only eleven such proposals supported by a majority of the votes, but this year that gure was already exceeded at the beginning of May, according to Risk Metrics. In total, Risk Metrics reckons about 80 say on pay-proposals have been put forward. Examples of American companies in which shareholders have succeeded with such proposals are Apple, Tupperware Brands, Prudential Financial, Marathon Oil, Pzer, Lexmark International, Pulte Homes and Dow Chemical. Also KLP and KLPs mutual funds have voted at several of these meetings.
Federal demand after crisis support
In the USA the almost 400 companies that have received nancial support from the governments crisis package are now required to hold a vote on guidelines for remuneration. Many hope for a congressional resolution that all American companies ought to hold such an advisory ballot. There are also companies
NORWEGIAN CODE FOR CORPORATE GOVERNANCE ON REMUNERATION:

n The guidelines for the remuneration of executive management should set out the main principles applied in determining the salary and other remuneration. The guidelines should help to ensure convergence of the nancial interests of executive management and shareholders. n Performance-related remuneration in the form of share options, bonus programmes or the like should be linked to value creation for shareholders or the companys earnings performance over time. Such arrangements should incentivise performance and be based on quantiable factors over which the employee in question can have inuence. Performance-related remuneration should not be such as might encourage a short-term approach that could be damaging to the companys long-term interests. n Consideration should be given to setting an absolute limit on performance-related remuneration. n The dates of issue and exercise of options should be spaced out over time. Any shares acquired through the exercise of options should be subject to a minimum period of ownership. n The remuneration of the board of directors should not be linked to the companys performance. The company should not grant share options to members of its board.
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saying voluntarily they will put the matter on the agenda in future, including Intel, Occidental Petroleum and Hewlett-Packard. In Canada the three large banks, Canadian Imperial Bank of Commerce, the Royal Bank of Canada and the National Bank of Canada have, as the rst Canadian companies, agreed to hold an advisory ballot on senior management remuneration during 2010.
Voting right according to the law
In Norway the shareholders right to express their opinion on the remuneration structure is statutory. Since 2007 the Public Limited Companies Act has required companies to report on guidelines for setting senior management remuneration at the general meeting. The ballot for the general setting of remuneration is advisory, whilst it is binding for those parts of the remuneration that are share-based. KLPs and KLPs mutual funds voting decisions are based on the Norwegian Code of Practice for Corporate Governance. As a result, we have voted against the boards recommendations on several general meetings. You can nd more information on these on www.klp.no. The majority of the instances of our voting against the recommendation of the board are precisely regarding the declaration on senior employee salary and other remuneration. Our objections relate among other to inadequate ceilings on bonuses or the lack of performance criteria as a basis for bonus. We have also voted against excessive severance pay agreements and against option schemes that include the board in addition to management.
Strong shareholder signal
In Switzerland, companies like Nestl, UBS and Credit Suisse had remuneration on the general meeting agenda for the very rst time. It is Swiss shareholders that have pressured the countrys largest companies about an annual vote on remuneration, and the result is a strong signal to the companies that this is what the shareholders want. Holding a ballot on remuneration is not a statutory requirement in Switzerland, as in other European markets. There are also several companies whose remuneration report has been rejected this year. Examples of high-prol protests over executive pay obtaining the majority of shareholders support are Shell and Royal Bank of Scotland.
NORWEGIAN PUBLIC LIMITED COMPANIES ACT ON REMUNERATION:

n The board of directors shall prepare a declaration on the xing of salaries and other remuneration of the general manager and other leading personnel. n The guidelines shall state whether it shall be allowed to pay remuneration in addition to basic salary, whether conditions or limits shall be stipulated for such remuneration and, if so, what these conditions or limits are. They shall also specify any performance criteria or allocation criteria. n The declaration shall include salary and also remuneration in the form of salary and remuneration in kind; bonuses; allocation of shares, subscription rights, options and other forms of remuneration linked to shares or the development of the share price; pension schemes; severance pay arrangements; any form of variable element in the remuneration, or special remuneration in addition to the basic salary. n The guidelines for schemes linked to shares or share price are binding on the board of directors unless otherwise stipulated in the articles of association. In other respects, the guidelines are of an advisory nature, although the articles of association may stipulate that they shall be binding. n If the board of directors deviate from these guidelines in an agreement, the grounds for so doing shall be stated in the minutes of the board meeting. n The declaration shall contain guidelines for the coming nancial year, as well as include a statement setting out the policy on the remuneration during the previous nancial year. ( 6-16a and 5-6)
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del en s FN rke e. Som e i gen takels medvi nger. nla e run vr del ikk esteri dig og inv e ver nnom er , le het vr ama ttigona gje ttig fra asj gi og ere ket i Pan kere FN to nes dte g, ern esk n 75 int strate nn uteluk k Cha p men te 8 sen yttinbru me for pen men dd 200 tigs erings le per er rup dam til bru en le om utstrakt vik ona gsg men mer vars og de invest asj selska iske es r dam men av ektr sier Somfor arke efolknin es, av et lige intern tte roel r asso be. er var tte Ng amabruksm av urb nenrsvmm t. hyd orte at tape er den rapp gen en Pan jord mer struksjoove ene ans st er for knin het nlag, vi vens lem Kon Pava driv e FN- efol til stat av sert ttig la med e. ret pen AES iflg urb eller leggelse nen rco ere digrun nsker sek r av til ford tpla Cha r kom som ne e app de jone esk , En kon opp et sjek nn Ps ver act elle ted, hete tend d Dam- av stas pro funn t 8 Me KL mp se. n en etsr hr arre seg 200 has av bos lsam blitt e og er ttigh owe grun av bal Co p dis tap vold satte loka med s vr emb kere t i Mer r p te dd av mot til at har ikke Des NY Glo nes lver one indelse gne lver n: bru som lede bere invo trisk men invo rasj til
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Governance on ethics
The Sustainable Value Creation Survey on ethical, social and governance (ESG) issues has had an eect. Last years experience will form the basis for an updated set of questions the investors want Norwegian listed companies to answer.
Sustainable Value Creation is a collaboration between the largest institutional investors in Norway. The investors want to increase awareness of good corporate governance in relation to ESG issues and last year sent out a survey to all companies in the Oslo Brs Benchmark Index concerning: n Key policy documents and commitments n Implementation and compliance n Reporting and communication n Board accountability companys results have been a subject for management and board meetings, as well as being used as a tool to identify matters that need monitoring and improvement. The area has also been included as a competency requirement related to selection of board members. About 10 companies answered that the project has contributed to changes. This represents 26 per cent of all respondents. The evaluation conrmed that the questions upon which the investors had placed most weight are also considered the most important by the companies and others. These are questions about external and internal reporting and communication, as well as the questions about board accountability. The investor group has invited Danish and Swedish investors to co-operate in the rollout of the project, but it is too early to announce any further developments. Memebers of the Sustainable Value Creation Initiative are Alfred Berg, DnB NOR/Vital, Folketrygdfondet, Gjensidige, KLP, Nordea, Ministry of Trade and Industry, Odin, StatoilHydro and Storebrand.
INVESTOR COLLABORATION
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A useful tool for change
Companies and other stakeholders have been invited to evaluate the project and give their feedback. The evaluation produced useful inputs. Most important, the investors have received a number of reports showing the project has had an eect, and that the individual feedback to each company that responded seems to have been valuable. The responses show the project has contributed to an increased focus on the subject in boards of directors and in company managements. For example the project and the
WWW.BAEREKRAFTIGVERDISKAPING.NO
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ENGAGEMENT IN CONTROVERSIAL COUNTRIES
Challenging business in Burma

To conduct business in a country which such a challenging human rights situation as Burma puts strong demands on corporations. KLP therefore engages in dialogue with corporations in high risk industries in the country.
The dialogue has started with eight companies, who all are involved in the largest oil and gas projects in Burma: Total, Chevron, Daewoo, Petronas, KOGAS, Gail, PetroChina og PTT. The OECD has classied Burma as a weak governance zone. Weak institutions make economic and social development diicult, and therefore, investments should be made cautiously, while continually focusing on ethics. Good corporate behaviour can contribute to increase wealth, and the transfer of technology and capacity, as well as promote international norms in the Burmese community. However, companies also risk nancing the military regime, thus indirectly contribute to e.g. human rights violations. Conducting business in a high risk country places demands on companies, especially with respect to ethical standards and governance systems. Total is one of the companies weve had the closest dialogue with. Eventhough operations in Burma are controversial, the company has good examples of how to deal with the challenges. For instance, Total has a specic Code of Conduct, management tool and reporting for its operations in Burma. These address compliance with international conventions, workers rights, forced labour, as well as risk assessment of operations and partners. Total has also established a system in which anyone experiencing any kind of human right violation committed by the Burmese military should report it immediately to Total. By enforcing this system, Total has created a zone around its operations where human rights violations can be prevented, despite the fact that forced labour is a practice used by the army in infrastructure projects. An additional example is Totals substitute for unions, which are illegal in Burma. The workers are organized in groups of 50, each having one representative, who then frequently meet with the management in order to discuss working conditions. KLPs engagement with companies operating in controversial countries has started in Burma. This is a joint initiative with other institutional investors through GES Investment Services.
Policies for preventing complicity
The dialogue with these companies addresses the degree to which a company has policies and practices that can prevent complicity. We also look at the ways in which the company contributes to the Burmese society in terms of e.g. economic or educational projects, and how the company uses its presence to positively inuence the military regime.
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n d t for som sine rud 50 Blan av efalinge pe etsb a er ding en. ndren t anb tsen selskap stop ttigh ker; cirkging til kere vera fulg byg sialu 7 nes spe 200 Sudan nes men dam edleene har tsi En ust men g av n av er hov kap erhe e i aug sjektet r om grun som sels s sikk tert pro orte gsyttin p om, n av gen trak ltaet. rapp tvan ytte Alst Inge . erin kon sel- var tet. ding regj vron Warride p vold stor t til jon i et ske t Che i nd kapeneprosjek tsen rian ytte sbyer uas ne gissel sels yr til spesialu elsit yrke te , nige ben land utst FNs den telse, p en giss tsst t some. Det stt at i hold dd men fra er s tilla angrep sikkerhe ble mer sam r har ende ogs mm vron er ne hvor som e vr und yrke dom elig tsstyrke innr Che be, atte ved er vron med koptre tsst i Para ans . To ung vold erhe et Che ker, heli erhe m frita mer eres sikk r p kap positivold sels om sikk og tfor lle dom r styr r gen 7, tyde olje t en i forh tisk de t ema iliorte erin 200 og vr bte gjor oljeplat sku 2 drif syst t fam stt e ung bilt dog rapp regj 5 til Det ets men end 200 frem mer atte for usta har er trer 8, menrianske 200 skap sam satt Det ser en er n erst nelse n emb elig demons Des i 199 nige ode er fort milj. og vi jobb ogs run n: N t av dde den t i peri et har beg taet RO side re skje r ogs lver rdel risikofyl ning kap og EV ert Sels eter rlige s hold CH klud hvo t invo . Nige i et ng. ttigh ytte r gass vron deri Eks e: GES vr blem rere og kere e. Se . I Kild d: USA Olje pro ope i Che nklu nes men er milj Lan stri: MSCI-W som ndring re-i men dom und tidig om ung vron Indu ks: fora e e frem Inde til vern dd av Che for til de g erin ene klud eks innb ygg Des emb er 200 7 utst yr
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Climate reporting produces useful information

What gets measured gets managed. Therefore companies should strive to measure their carbon emissions, and to identify opportunities and challenges related to climate change.
Carbon Disclosure Project (CDP) is the worlds largest investor collaboration on the business implications of climate change. CDP collects information on the climate strategies and emissions of the largest companies across the world. By backing this initiative collectively, investors make the reporting eective for companies, and promote a standardized reporting process. The CDP survey covers ve areas: 1. Analysis of the climate change related risks and opportunities. 2. Strategy to respond to the risks and opportunities. 3. GHG emissions accounting 4. GHG emissions management, reduction and cost implications. 5. Climate change governance. An example of how climate reporting provides the company itself with valuable insight is Wal-Mart, which thought that its largest source of emissions was its eet of trucks. Nevertheless, when doing its CDP report, it became evident that the refrigerants used in grocery stores made up a larger percentage of the companys greenhouse gas footprint. Although a signicant eort is focused on improving fuel eiciency of trucks, the company also had to start looking into its regrigerant footprint. Many of the corporate responses can be viewed at the CDP website. KLP asserts that energy eiciency and emissions reductions will be protable for companies in the long-term. CDP is an important initiative for making information available to investors and continuously improving the quality of data.
CARBON DISCLOSURE PROJECT
ABOUT CDP:
n The mission is to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change. n CDP is supported by 475 of the worlds largest investors (assets under management 55 trillion USD). n CDP is supported by several Norwegian investors. KLP is the Norwegian partner. n More than 2,000 companies responded and reported on their emissions and climate strategies last year. n This year, CDP involves 200 Nordic companies, of which 48 are Norwegian. Last year only 17 Norwegian companies responded to CDP. 2009 is the third year Norwegian companies are included. 14
NORWEGIAN MICROFINANCE INITIATIVE
Ready to make its rst investments

Measuring social performance of its fundings will be in focus when the Norwegian Micronance Initiative (NMI) will make its rst investments this summer.
NMI has a double bottom line it seeks both social and nancial returns. While nancial performance is easy to measure, measuring the social performance is more challenging. As it makes its rst investments NMI will seek to use industry best practices and investments discipline to measure the social impact of its funding. In doing this, NMI will press its fund managers and the micronance institutions to use many of the indicators developed by the industry to measure and report on social performance. These indicators range from the micronance institutions routines and policies, to concrete results of its loans, such as what segments of society clients come from, the drop-out rate, percent of clients saving or percent of clients living below poverty level. Measuring social performance will be a priority of NMI. We will make sure that we are obtaining information and continuous reporting from our investment partners, says Richard Weingarten, Managing Director of NMI. performance and risk, the industry has adopted and managed quite well so far. The challenges are primarily focused on limited liquidity and access to capital, but from NMIs point of view that creates attractive investment opportunities and allows our investment to have broader and deeper development impact, Weingarten says.
Two separate funds
NMI has to dierent investment funds, and these funds have dierent strategies. The NMI Global Fund will primarily invest in a variety of other investment funds. Thus, it will be a fund of funds and will identify and invest in the best micronance international, regional and local fund managers. NMI Global Fund will invest in both debt and equity instruments. NMI Frontier Fund will invest primarily in young and emerging micronance institutions. These are institutions that have good prospects for attaining nancial sustainability within the next several years but that have not yet attracted signicant investment. NMI Frontier Fund will be more equity-oriented than the Global Fund and thus will assume considerably more nancial risk. NMI Frontier Fund will also take larger positions in the micronance institutions in which it invests, and will be an active investor. The funds will focus their investments in SubSaharan Africa and South and Southeast Asia.
Many investment opportunities
NMI expects to nalize its investment strategy in June and to make its rst investments this summer. Weingarten believes that the micronance industry has responded well to the global nancial crisis. Interest rates and costs have gone up, to some extent, but in terms of portfolio
Responsible investments from a lowcost leader.
16
Voting at general meetings

The general meeting is an important arena for dialogue between corporate management and shareholders. As owner in many quoted companies, KLP and KLPs mutual funds use their voting rights actively - both in Norway and abroad.
The voting decisions of KLP and KLPs mutual funds in Norwegian companies are discussed internally, meeting for meeting. Our voting policy is based on the Norwegian Code of Practice for Corporate Governance. For our shares abroad, we vote by proxy through our service provider Risk Metrics Group. They vote according to the policy and criteria we have set, which are based upon international principles for best practice corporate governance. These shall protect our interests as owners not only with regards to traditional corporate governance and nancial issues, but also with regards to companies environmental and social impacts. We vote in favour of resolutions that are considered to enhance a long-term, sustainable value creation for shareholders and other stakeholders. By voting with the assistance of a service provider specializing in this eld, we ensure that we vote consistently and in consensus with other international investors. Voting activities are also an important platform for our cooperation with other investors. As of today, KLP votes in the following 15 markets: Australia, Canada, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Switzerland, the UK and the USA.
THE NORWEGIAN CODE OF PRACTICE FOR CORPORATE GOVERNANCE

Adherence to the Code of Practice is based on the comply or explain principle whereby companies must either explain how they comply with each of the recommendations or explain why they have chosen an alternative approach. The Code of Practice in detail is available on www.nues.no. The code addresses the following issues: 1. 2. 3. 4. 5. 6. 7. Implementation of the Code of Practice for Corporate Governance Business Equity and dividends Equal treatment of shareholders and transactions with close associates Freely negotiable shares General meetings Nomination committee 8. 9. 10. 11. 12. 13. 14. 15. Corporate assembly and board of directors: composition and independence The work of the board of directors Risk management and internal control Remuneration of the board of directors Remuneration of the executive management Information and communications Take-overs Auditor
Voting internationally
As of April 30, 2009 Number of general meetings 411 Number of items 8,374 Percent of items KLP and KLPs mutual funds voted against management 10%
KLP and KLPs mutual funds have voted internationally since late 2007.
2008 1,539 33,703 10%
2007 45 300 8%
Management resolutions
Themes Directors related Routine/business Capitalization Non-salary compensation Mergers and re-organizations Preferred/bondholder meetings Anti-takeover related Total
Number of items 4,362 1,695 1,308 522 140 36 19 8,082
For the board recommendation 91% 96% 90% 70% 84% 100% 63% 90%
Against the board or abstain 9% 4% 10% 30% 16% 0% 37% 10%
Number of items in 2008 20,775 5,518 2,891 2,267 909 82 219 32,661
Shareholder resolutions
Themes Directors related Compensation Routine/business Corporate governance Health and environment General economic issues Human rights Anti-social proposals Other Total
Number of items 120 88 21 21 8 3 2 2 27 292
For the board recommendation 30% 26% 29% 38% 0% 33% 0% 100% 44% 30%
Against the board or abstain 70% 74% 71% 62% 100% 67% 100% 0% 56% 70%
Number of items in 2008 356 202 153 61 72 2 32 14 150 1,042
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Voting in Norway
As of April 30, 2009 Number of general meetings 30 Number of items 272 Percent of items where KLP and KLPs mutual funds voted against management 6% Percent of items where KLP and KLPs mutual funds abstained 2%
KLP does not have statistics for its voting activities in Norway in 2007.
2008 29 274 1% -
Resolutions
Themes Routine/business Directors related Capitalization Non-salary compensation Shareholder resolutions Mergers and reorganizations Anti-takeover related Total
Number of items 135 61 41 28 4 3 0 272
For the board recommendation 99% 95% 93% 64% 50% 100% 92%
Against the board or abstain 1% 5% 7% 36% 50% 0% 8%
Number of items in 2008 131 67 42 32 2 0 0 274
10%
Not voted
KLP and KLPs mutual funds have voted at approximately 90 per cent of the Norwegian general meetings they have had voting rights at January 1 - April 30, 2009.
90%
Voted
During 2009 KLP and KLPs mutual funds have worked more systematically to exercise their voting rights at Norwegian companies general meetings. See information on how they have voted on www.klp.no.
Dialogue, observation and exclusion

KLP engages in dialogue both with excluded companies and companies that are under observation. The goal in both cases is improvement in policies and practices.
KLPs experience is that the synergy between dialogue and exclusion is an eective way of inuencing companies. It adds credibility to our engagement activities, as does the transparency around our strategy and exclusions. We also meet with companies that are not excluded. This is our way of signalling that KLP does care about the business practices in the companies invested. Dialogue with companies is usually a combination of meetings with management, e-mail correspondence and telephone conferences.
business conduct, GES elucidates the incident and contacts the company in order to get their comments and to initiate a dialogue on investors behalf. GES is also in dialogue with other stakeholders in order to form an objective understanding of the incident. If the analysis concludes that a particular company is associated with the incident of violation, and the company does not show suicient willingness to take responsibility for the incident and its consequences, GES will recommend the company to be excluded, as a last resort. All accusations require an oicial source, for instance the UN or a government, or must be conrmed by the company involved.
Sources and analyses
The almost 2,000 companies in KLPs investment universe are continuously monitored. KLPs primarily utilizes the Global Ethical Standard Investment Services (GES) analyses as the foundation for our engagement and exclusions. In addition, we also rely on decisions of the Ethical Council for the Norwegian Government Pension Fond Global (NGPF). KLPs motivation for the latter, is because our customers and owners, mostly from public sector, have policies to follow the guidelines of NGPF. GES screens 9,000 news sources, including UN bodies, business magazines and news letters. If a company is associated with unacceptable
20
Exclusion criteria
Our engagement and exclusions addresses a sustainable business conduct in line with international norms and conventions in the following areas: n Human rights n Labour rights n Environmental degradation n Corruption n Production of weapons violating humanitarian principles n Production of tobacco
Company dialogue
15.11.200815.5.2009 Company AES Grupo Ferrovial Monsanto Norsk Hydro Odfjell Thales Status Excluded Reinstated June 2009 Reinstated June 2009 Previously under observation Under observation Reinstated June 2009 Topic Human rights Environment Environment Labour rights Labour rights and environment Corruption and weapons
YES
Incident Research and analysis Dialogue and engagement Satisfactory results?
No exclusion
Our goal is always to inuence companies towards responsible and sustainable value creation.
NO
Exclusion
Companies under critical observation are close to be excluded. As a rst step before excluding, KLP will try inuencing through an active dialogue.
Eutelsat Communications In June 2008 Eutelsat discontinued the broadcast of NTDTV, a regime independent Chinese TV channel to China. The company claimed it was due to irreparable technical problems with its satellite, but its critics claim that there is evidence that the real reason is to gratify the Chinese regime in order to enter the Chinese market. The European Parliament has adopted a Written Declaration which urged the company to immediately resume the transmission and provide reasons for the suspension. Exxon Mobil Exxon operates an oil and gas project at the Sakhalin Island, in waters that constitute the only known feeding grounds for the western gray whale, listed as a critically endangered species. The number of observed whales in the area declined dramatically during 2008. The International Union for Conservation of Nature (IUCN), which is researching the area, has therefore concluded that all activities planned for 2009 should be postponed until the western gray whale population has been fully monitored and assessed.
Critical observation
Companies take responsibility

KLP works systematically to reduce the number of excluded companies and is pleased to see that companies do improve their practices. In this round, we are happy to reinstate as many as seven companies.
Exxon Mobil
Exxon was excluded from KLPs investments due to suspicion of corruption in Equatorial Guinea (EG). Six American oil companies, including Exxon, were included into investigations by the US Senate Permanent Subcommittee on Investigations in relation to their operations in EG. According to the committee, a number of substantial payments have been made by oil companies to individual EG oicials, their family members or entities controlled by these. Exxon has submitted responses to questions raised by the SEC. The company has subsequently demonstrated engagement towards anti-corruption and has actively participated in the development of the Extractive Industries Transparency Initiative (EITI). Dialogue with the company and other stakeholders veries the commitment to combat corruption and inuence the government of EG.
Progress:
Marathon Oil
Marathon Oil was excluded due to the same reason as Exxon Mobil: suspicion of corruption in Equatorial Guinea (EG). Allegedly, a number of substantial payments have been made by oil companies to individual EG oicials, their family members, or entities controlled by oicials or family members. Marathon Oil has demonstrated an anticorruption policy and robust management systems and controls. In addition, the company has engaged actively in the development of the anti-corruption program EITI in EG. Dialogue with the company and stakeholders veries this engagement and responsibility. Recently the company has also received a letter from the SEC stating that the investigation is completed and that they do not intend to recommend any enforcement action.
Progress:
1
Excluded: December 2004 Reason: Corruption Source: GES Country: USA Industry: Oil and gas Index: MSCI, FTSE
2008 2008 2008 2009
1 2 3 4
22
2008 2008 2008 2009
2 3 4
Excluded: December 2004 Reason: Corruption Source: GES Country: USA Industry: Oil and gas Index: MSCI, FTSE
men 1 The violation has ceased. ts 2 The company has adopted a responsible course of action. 3 The company has taken a proactive and precautionary approach to improve routines and prevent future violations. 4 The companys action points (point 1-3) are veriable.
requ
4
ire
Grupo Ferrovial
Grupo Ferrovial was involved in the construction of a highway mapped through several areas of great natural value and protected by environmental laws. In 2007, the European Commission (EC) repeatedly sent warning letters to the Polish government about the routing of the Via Baltica expressway, and took Poland to the European Court of Justice. The environmental consent was cancelled by a Polish court and the project halted. Polish authorities are responsible for planning the routing, but also Grupo Ferrovial was responsible as they initially were reluctant to seriously address the environmental risk. Grupo Ferrovial has addressed the situation and proactively worked for a satisfactory solution and improved the companies risk management. Dialogue with the company and stakeholders veries this engagement and responsibility.
Progress:
Monsanto
Monsanto was excluded due to unsatisfactory responsibility for the environmental eects of its systematic dumping of highly toxic waste in landll sites during the 1960s and 1970s. A report from the Environment Agency (EA) regarding the Broscin site in Wales, shows an ongoing contamination of groundwater by polychlorinated biphenyls (PCBs), which are said to be one of the most toxic chemicals ever made by humans. A variety of toxic chemicals have been found in soil, herbage, surface water and groundwater. The site has been called one of the most contaminated in the country. Monsanto today has a robust environmental management system and controls in place. Dialogue with the company and stakeholders veries that the company will collaborate with the government in order to solve the situation and clean up the site.
Progress:
1 2 3 4
2008 2007 2008 2009
Excluded: June 2007 Reason: Environment Source: GES Country: Spain Industry: Construction and engineering Index: MSCI, FTSE
1 2 3 4
2009 2009 2008 2009
Excluded: June 2007 Reason: Environment Source: GES Country: USA Industry: Fertilizers and agricultural chemicals Index: MSCI, FTSE
Thales
Thales was excluded in 2005 due to production of cluster bombs. In addition Thales became associated with corrupt business practices in 2006, involving payments of bribes to South Africas former Deputy President Jacob Zuma in relation to an arms deal. This is conrmed in a Durban High Court Judgement. Additionally, a former Thales director has openly accused Thales of systematic corrupt business practices which has led to French judicial investigations. The alleged activities indicated systematic corrupt business activities. However, there have not been any reports on recent incidents. The company has recognized stakeholders concerns and has established a robust anti-corruption system and controls reecting the companys signicant risk in the area. Also, dialogue with the company and stakeholders veries that the company no longer has any involvement in the production of cluster bombs. Thales is as of May 2009 still excluded from the Norwegian Governments Pension Fund Global (NGPF) because of cluster munitions production. Thales has directly to KLP and publicly stated that it no longer has any involvement in the production or sales of cluster munitions. France has also signed the new Oslo Convention on Cluster Munitions. As a result KLP believes it is reasonable to deviate from the NGPF conclusion in this particular case.
Progress (corruption)
Richemont
Richemont used to own a large share of British American Tobacco, but has now sold its share in the tobacco industry.
PetroChina
An explosion at a chemical plant killed and injured workers, and lead to approximately 100 tons of pollutants leaking into the Songhua river. Information about the accident was withheld for nine days. PetroChina has paid for the remediation, and implemented a new HSE management system.
Progress
1 2 3 4
2006 2008 2007 2009
Excluded: June 2006 Source: GES Country: Hong Kong Industry: Oil and gas Index: Not included in KLPs benchmark index
Chevron
The contractual relationship with the Nigerian governments security forces puts Chevron at high risk for being associated to complicity to violations of human rights. The reason for exclusion was that the security forces used transport equipment contracted to Chevron, with the companys authorization, in an attack on two villages in the Warri Delta, and in an violent encounter in a hostage situation. In dialogue with the company and stakeholder, it is veried that Chevron has implemented the Voluntary Principles for Human Rights in its Nigerian operations with a high level of commitment.
Progress
1 2 3 4
2007 2007 2008 2009
Excluded: December 2005 Reason: Corruption and cluster munition Source: GES, NGPF Country: France Industry: Aeorspace and defence Index: MSCI, FTSE
1 2 3 4
2001 2001 2008 2009
Excluded: December 2002 Reason: Human rights and environment Source: GES Country: USA Industry: Oil and gas Index: MSCI, FTSE
24
Excluded companies
Human rights
n n n n n n n n n AES Alstom China Mengniu Dairy Dongfeng Motor Group Incitec Pivot L-3 Communications* Vedanta Resources* Wesfarmers Yahoo! Bridgestone Group 4 Securicor Toyota Motor Wal-Mart Stores Barrick Gold Chevron DRDGold Duke Energy Freeport McMoRan Rio Tinto Vedanta Resources* USA France China Hong Kong Australia USA UK Australia USA Japan UK Japan USA Canada USA South Africa USA USA UK, Australia UK USA USA UK USA Netherlands Italy USA USA South Korea USA USA USA USA South Korea USA France UK Singapore USA USA Spain USA UK UK Japan USA USA USA Sweden Power Producers and Energy Traders Electrical Equipment Food Products Automobile Manufacturer Fertilizers and Agricultural Chemicals Aerospace and Defence Metals and Mining Hypermarkets and Super Centers Internet (Software and Services) Tires and Rubber Security and Alarm Services Automobile Manufacturer Hypermarkets and Super Centers Metals and Mining Oil and Gas Gold Electric Utilities Materials Metals and Mining Metals and Mining Oil and Gas Aerospace and Defence Aerospace and Defence Aerospace and Defence Aerospace and Defence Aerospace and Defence Aerospace and Defence Aerospace and Defence Commodity Chemicals Aerospace and Defence Aerospace and Defence Aerospace and Defence Aerospace and Defence Metals and Mining Aerospace and Defence Aerospace and Defence Environmental and Facilities Services Aerospace and Defence Industrial Conglomerate Aerospace and Defence Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco NEW (Feb.) NEW NEW
Labour rights
n n n n
Environment
n n n n n n n
Corruption
n Hess
Weapons production
n n n n n n n n n n n n n n n n n n n Alliant Techsystems BAE Systems Boeing EADS Finmeccanica GenCorp General Dynamics Hanwha Corporation Honeywell L-3 Communications* Lockheed Martin Northrop Grumman Poongsan Raytheon Safran Serco Group Singapore Technologies Engineering Textron United Technologies Altadis Altria Group British American Tobacco Imperial Tobacco Japan Tobacco Lorillard Philip Morris Reynolds American Swedish Match
Tobacco production
n n n n n n n n n
* The company is excluded for several reasons.
Our goal is to inuence companies towards responsible and sustainable value creation.
26
ts Four requiremen t for reinstatemen
ident 1 The reported inc . ed as ce has has adopted 2 The company course of action. le sib a respon has taken 3 The company ecautionary d a proactive an pr e routines ov pr im to ch approa lations. vio e and prevent futur points n tio ac ys an 4 The comp ab ri le. (point 1-3) are ve
Human rights
The Universal Declaration of Human Rights is an important pillar of worldwide human values. It is our responsibility as an investor and owner to support and promote adherence to this important declaration. As a consequence, nine companies associated with human rights violations have been excluded from our investment universe.
Progress: 1 2 3 4
AES
Excluded since: December 2008 Source: GES Country: USA Industry: Power Producer Index: MSCI-WI, FTSE
AES operates the hydroelectric dam Chan 75 in Panama, which according to several UN Special Rapporteurs has been associated with violations of the human rights of the indigenous Ngbe people. During the summer of 2008, urgent appeals were sent to the State of Panama from the UN, expressing concern over the arbitrary displacements, loss of housing, destruction of agricultural crops and the excessive use of force and detaining of members of the community that opposed to project. The construction of the dam can result in the ooding of the indigenous Charco la Pava community, but the community has not been consulted.
Progress: 1 2 3 4
ALSTOM
Excluded since: December 2007 Source: GES Country: France Industry: Electrical Equipment Index: MSCI-WI, FTSE
Alstom is associated with complicity in human rights violations in a hydro-electric project in Sudan. In August 2007, a UN Special Rapporteur from the Human Rights Council called upon companies involved in the Merowe Dam project to halt the operations due to concerns over human rights violations in connection with large resettlements involving 50,000 people. Among the companies is Alstom, which is the main supplier of electrical equipment to the project. None of the companies has followed the recommendation from the UN Special Rapporteur.
Progress: 1 2 3 4 Progress: 1 2 3 4
CHINA MENGNIU DAIRY
Excluded since: December 2008 Source: GES Country: China Industry: Food Products Index: Not included in KLPs benchmark index
In September 2008, Chinese oicials announced that infant milk powder produced in the country had been contaminated with the non-alimentary chemical melamine. The contamination led to the death of four infants and approximately 94,000 sickened with symptoms such as kidney stones and kidney failure. At the heart of the scandal stand some of the largest dairy companies in China, one of them being China Mengniu Dairy. Subcontractors have watered down the milk to increase the quantity, and in order to increase the protein level melamine has been added as it boosts nitrogen levels. Dongfeng Motor Group sells military equipment to the government of Burma. The current sanctions of both the EU and the US towards Burma make sale, supply, transfer or export of armes and related materiel to Burma illegal. The exclusion of the company from our investment universe, is a consequence of the ethical guidelines of the Norwegian Government Pension Fund - Global, saying that investments in companies selling arms or military equipment to states which are on the list of countries whose government bonds are not investable, are to be avoided for the fund.
DONGFENG MOTOR GROUP
Excluded since: June 2009 Source: NGPF Country: Hong Kong Industry: Automobile manufacturer Index: Not included in KLPs benchmark index NEW
28
Progress: 1 2 3 4
INCITEC PIVOT
Excluded since: June 2009 Source: GES Country: Australia Industry: Fertilizers & Agricultural Chemicals Index: MSCI-WI NEW
The company is importing phosphate rock from Wester Sahara. The region is occupied by Morocco and the International Court of Juste has ruled that Morocco has no legal claims to Western Sahara, and consequently Morocco is not entitled to exploit its natural resources. The exploitation of the natural resources of colonised territories, Western Sahara in particular, has also been declared illegal in an opinion issued by the UN Under-Secretary General for Legal Aairs.
Progress: 1 2 3 4
L-3 COMMUNICATIONS HOLDINGS
Excluded since: December 2005 Source: GES Country: USA Industry: Aerospace and Defence Index: MSCI-WI, FTSE
The US armys investigation about the conditions in the Abu Ghraib prison describes several instances and practices of human rights abuses where not only soldiers but also Titan employees allegedly were involved or present. In 2003-2004, the US army held hundreds of prisoners in various prisons in Iraq. Titan has been acquired by L-3 Communications, who is continuing to supply linguist and translator services to the US army and therefore should adopt a human rights policy addressing operations in sensitive countries such as Iraq and Afghanistan. See further reasons for exclusion of L-3 Communications under Weapons production.
Progress: 1 2 3 4
VEDANTA RESOURCES
Excluded since: December 2008 Source: GES, NGPF Country: UK Industry: Metals and Mining Index: MSCI-WI, FTSE
Vedanta Resources is in the process of establishing an aluminium production complex consisting of a bauxite mine and alumina renery in Orissa in India. In establishing its operation the company has reportedly contributed to human rights abuses, including forced relocations, and violence and intimidation against local residents. For instance, the proposed hilltop mine is one of the local tribes most sacred sites. Furthermore the company has in this process, according to the local authorities, breached Indian environmental laws, mislead authorities, and caused environmental degradation. Other accusations include illegal production expansions, irresponsible handling of hazardous waste, violations against tribal peoples, deplorable wages, and dangerous working conditions in the mines and factories. Wesfarmers is associated with illegal exploitation of natural resources in Western Sahara, thus indirectly funding Moroccos illegal occupation of the country. The practice of importing phosphate rock from the concerned territory has been conrmed by the company. In 1975, the International Court of Justice ruled that Morocco has no legal claims to Western Sahara and consequently not to its natural resources. In 2002, the exploitation of the natural resources of colonised territories Western Sahara in particular was declared illegal in an opinion issued by the UN Under-Secretary General for Legal Aairs. Yahoo stands criticised for having passed on Internet user information of a Chinese journalist to Chinas state security leading to a ten-year imprisonment for the journalist. The transfer of information is conrmed by Chinese court documents and company statements. The company has during 2008 launched a Business and Human Rights Program to raise the awareness on the issue within the company. It has also together with other information technology companies in the Global Network Initiative launched a set of principles that aim to protect freedom of speech and privacy in the information and communication technologies industry.
Progress: 1 2 3 4
WESFARMERS
Excluded since: December 2007 Source: GES Country: Australia Industry: Hypermarkets and Super Centres Index: MSCI-WI, FTSE
Progress: 1 2 3 4
YAHOO!
Excluded since: December 2005 Source: GES Country: USA Industry: Internet (software and services) Index: MSCI-WI, FTSE
Labour rights
Every employee has fundamental labour rights. The ILO set core standards governing freedom of association, forced labour, child labour and discrimination. Companies should apply these standards on a global basis. Four companies have been excluded from our investment universe associated with labour rights violations.
Progress: 1 2 3 4
BRIDGESTONE
Excluded since: December 2006 Source: GES Country: Japan Industry: Tires and Rubber Index: MSCI-WI, FTSE
The UN Mission in Liberia has published a report on human rights conditions at rubber plantations, including a plantation owned by Firestone, a Bridgestone subsidiary. The report portrays child labour as a serious problem, supporting the allegations forwarded in a lawsuit against the company led by the International Labor Rights Fund (ILRF), which is still ongoing. The company claims it has banned children from tapping trees, but workers say the ban is not enforced. Allegedly, children begin to work at the age of nine or ten in order to help their parents meet the quotas set by the company. The plantation is the largest plantation in the world, and the largest employer in Liberia. An important step forward is the collective bargaining agreement that was signed at the plantation in summer 2008. Group 4 Securicor (G4S) is reported to have committed systematic violations on labour rights in twelve countries. Violations in at least ve countries can be veried by oicial bodies, e.g. International Labour Organization (ILO) and national judicial authorities. The reported practices can be associated with freedom of association, systematic violations of labour laws, unlawful dismissal of workers, harassment of trade unionists and breaches of binding collective agreement. An important step forward is that the company in late 2008 signed a global agreement with the International trade union alliance UNI (Union Network International). The Toyota Motor Philippines Company Workers Association union alleges that the management of Toyota Motor Philippines has impeded the right to organise and collective bargaining and recurred to illegal dismissals of workers. The case is under scrutiny by a Philippine court and by the International Labour Organizations (ILO) Committee of Freedom of Association. The ILO lists a number of actions taken by the company to challenge the certication of a union and to intimidate employees in their preference of union. A steady stream of media reports and law suits testify of WalMarts notoriously bad labour practices. The company is criticised for regulatory and legal non-compliance in several areas related to labour rights. Specic incidents concern child labour, sweatshop conditions at factories, discrimination of women and anti-union behaviour. In 2008, Massachusetts highest court ruled in favour for some 67,500 current and former employees of Wal-Mart who claimed the company systematically withheld their wages. The attorney on the case has more than 30 other similar cases pending against Wal-Mart in other states.
Progress: 1 2 3 4
GROUP 4 SECURICOR
Excluded since: June 2008 Source: GES Country: UK Industry: Security and Alarm Services Index: MSCI-WI
TOYOTA MOTOR
Excluded since: December 2005 Source: GES Country: Japan Industry: Automobile Manufacturer Index: MSCI-WI, FTSE
WAL-MART STORES
Excluded since: June 2003 Source: GES, NGPF Country: USA Industry: Hypermarkets and Supercenters Index: MSCI-WI, FTSE
30
Environment
The environment is our common resource, and subsequently, our common responsibility. By excluding companies that are causing environmental degradation, KLP acts responsibly and wishes to signalize the importance of sound environment management. As a consequence, six companies have been excluded from our investment universe, associated with environmental degradation.
Progress: 1 2 3 4
BARRICK GOLD
Barrick Gold, the worlds larges gold producer, causes extensive environmental degradation by its operations in the Porgera gold mine in Papua New Guinea. The company makes use of a natural river system to transport and dispose of mine waste, which has a negative impact on the populations life and health, including both the residents of the actual mining area and people who live along the river downstream of the mine. The biggest threat is the heavy metals contamination, especially from mercury, produced by the tailings. The environmental damage that riverine disposal may cause are well known, but the company has not implemented any appreciable measures to prevent or reduce this damage. In 2004, a trial was initiated against Chevron in Ecuador. The company stands accused of systematically dumping billions of gallons of highly toxic, carcinogenic waste into pits dug into the earth. This happened in the Amazonas jungle where Chevron operated from the 1960s to the 1990s. The trial is ongoing, and both parties are doing scientic studies of the area. Chevron contests several of the studies made, saying that they are scientically unreliable. However, in autumn 2008, an independent expert found that 42 out of 46 toxic waste pits inspected contain high levels of toxins, and that most of them were excluded from the remediation program that Chevron has agreed upon with the government of Ecuador. The company is associated with extensive and irreversible damage to the environment. According to the Norwegian Government Pension Funds Ethical Councils assessment, the companys practice of riverine disposal is in breach of international norms, and the question may be raised whether the company violates national environmental regulations as well.
Excluded since: February 2009 Source: GES, NGPF Country: Canada Industry: Metals and Mining Index: MSCI, FTSE NEW
Progress: 1 2 3 4
CHEVRON
Excluded since: June 2004 Source: GES Country: USA Industry: Oil and Gas Index: MSCI-WI, FTSE
DRDGOLD
Excluded since: May 2007 Source: NGPF Country: South Africa Industry: Gold Index: Not included in KLPs benchmark index
DUKE ENERGY
Excluded since: December 2006 Source: GES Country: USA Industry: Electric Utilities Index: MSCI-WI, FTSE
Duke Energy has chosen not to install pollution control equipment at several of its plants. This in combination with the age of the plants and their large quantity of emissions indicate that the company does not manage its most central environmental risks in an adequate way. The impacts of its operations are signicant on the environment and public health. In 2006, the US Supreme Court granted permission for the Environmental Protection Agency to proceed with a lawsuit against Duke Energy under the Clean Air Act. The case stems from the late 1990s when Duke Energy endeavoured upon a modernisation program, extending the life of eight of its oldest coal-red electricity plants for another 20 years.
Progress: 1 2 3 4
FREEPORT MCMORAN
Excluded since: July 2006 Source: GES, NGPF Country: USA Industry: Metals and Mining Index: MSCI-WI, FTSE
PT Freeport Indonesia, a subsidiary to Freeport McMoRan Copper and Gold, has received heavy criticism for polluting the surroundings of its Grasberg mine in Indonesia. The mine is the worlds largest gold mine and second largest copper mine. It is one of the worlds most criticized mining ventures. The main concerns relate to acid rock drainage and riverine tailings disposal. The company disposes 230,000 tonnes per day of heavy metal containing mine tailings into local rivers, a practice that has been widely outlawed. The government has accused the company of negligence and ordered the company to take measures to minimise the eect on the environment.
Progress: 1 2 3 4
RIO TINTO
Excluded since: December 2008 Source: GES, NGPF Country: UK, Australia Industry: Metals and Mining Index: MSCI-WI, FTSE
Rio Tinto Group is a joint venture partner with Freeport McMoRan in the Grasberg mine in Indonesia, the worlds largest gold mine and second largest copper mine. The mine discharges large amounts of tailings directly into a river; approximately 230,000 tonnes or more per day. The discharges will be increasing in future in line with expansion of the mine. There is a high risk that acid rock drainage from the waste rock and tailings dumps will cause lasting ground and water contamination. The mine is deemed to remain protable until 2041, which is expected to result in severe long-term environmental degradation. There are no indications that these practices will be changed.
Progress: 1 2 3 4
VEDANTA RESOURCES
Excluded since: December 2007 Source: GES, NGPF Country: UK Industry: Metals and Mining Index: MSCI-WI, FTSE
Vedanta Resources is establishing an aluminium production complex in the Indian state of Orissa. In this process the company has, according to local authorities, breached Indian environmental laws, mislead authorities and caused environmental harm. These include the discharge of toxic alkaline and heavy metal laden water into rivers and groundwater. Several square kilometres of forest in one of Indias most biodiverse regions will be cleared. Reportedly, Vedanta has also contributed to human rights abuses, including forced relocations, and violence and intimidation against local residents. For instance, the proposed hilltop mine is one of the local tribes most sacred sites. Other accusations include illegal production expansions, irresponsible handling of hazardous waste and dangerous working conditions.
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Corruption
Corruption is one of the major economic challenges hindering economic and sustainable development in many countries. As an investor, KLP supports the international battle against corruption by excluding companies that have been associated with severe or systematic corrupt activities. As a consequence, one company has been excluded from our investment universe for corruption activities.
Progress: 1 2 3 4
HESS
Six large American oil companies, including Hess, were investigated by a Subcommittee of the US Senate in relation to their operations in Equatorial Guinea. According to the committee a number of substantial payments have been made by oil companies to individual E.G. oicials, their family members, or entities controlled by these. Hess has submitted responses to questions raised by the SEC. So far, SEC has not given any formal statement regarding its investigation. The company has subsequently demonstrated a robust anti-corruption management system.
Excluded since: December 2004 Source: GES Country: USA Industry: Oil and Gas Index: MSCI-WI, FTSE
Weapons production
Some weapons hit harder, and aect more civilians than others. KLP does not want to contribute to manufacture, sale or use of weapons that do not dierentiate between civilian and military targets. As a consequence, 19 companies involved in the production or sale of landmines, and nuclear and cluster weapons have been excluded.
ALLIANT TECHSYSTEMS
Excluded since: December 2005 Source: GES, NGPF Country: USA Industry: Aerospace and Defence Index: Not included in KLPs benchmark index
Alliant Techsystems has been involved in many weapon projects as a supplier of special components as well as main contractor for whole cluster munitions. It still markets some of them on its website. The company has for instance produced the cluster bomb CBU-87/B, which contain 202 pieces of BLU-97 explosive devices. This is one of the most commonly used air-delivered cluster weapons. This information is veried by Janes Information Group.
BAE SYSTEMS
Excluded since: January 2006 Source: NGPF Country: UK Industry: Aerospace and Defence Index: MSCI-WI, FTSE
BAE Systems, Finmeccanica and EADS have together formed the joint venture MBDA. The ownership structure, according to EADS homepage is 37,5 percent BAE, 37,5 percent EADS and 25 percent Finmeccanica. This is also conrmed on the homepages of BAE Systems and Finmeccanica. According to Janes Air Launched Weapons, MBDA is under contract to develop and produce the ASMP-A missile for the French armed forces. ASMP-A is described as a nuclear warhead air-to-surface missile.
BOEING
Excluded since: January 2006 Source: NGPF Country: USA Industry: Aerospace and Defence Index: MSCI-WI, FTSE
The company is, according to its own home page a suppler of various forms of maintenance and upgrade services for the Minuteman III ICBM. ICBM, short for Intercontinental Ballistic Missiles, is the main element of the US land based strategic nuclear weapons.
EADS
Excluded since: December 2005 Source: NGPF Country: Netherlands Industry: Aerospace and Defence Index: MSCI-WI, FTSE
EADS (European Aero-Nautics Defence and Space Company) has conrmed that the company is part of the joint venture TDA. TDA produces, among other things, the artillery grenade PR Cargo, which the company describes as follows: This is a submunition projectile for 120 mm ried mortars. Equipped with dual eect-submunitions, it engages dismounted troops and light armored vehicles. According to Janes Information Groups database InfantryWeapons, PR Cargo contains 16 bomblets each. This type of weapon is an area-weapon and is primarily used against personnel.
FINMECCANICA
Excluded since: January 2006 Source: NGPF Country: Italy Industry: Aerospace and Defence Index: MSCI-WI, FTSE
BAE Systems, Finmeccanica and EADS have together formed the joint venture MBDA. The ownership structure, according to EADS homepage is 37,5 percent BAE, 37,5 percent EADS and 25 percent Finmeccanica. This is also conrmed on the homepages of BAE Systems and Finmeccanica. According to Janes Air Launched Weapons, MBDA is under contract to develop and produce the ASMP-A missile for the French armed forces. ASMP-A is described as a nuclear warhead air-to-surface missile.
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GENCORP
Excluded since: January 2008 Source: GES, NGPF Country: USA Industry: Aerospace and Defence Index: FTSE. Not included in KLPs benchmark index
GenCorp has manufactured special components for cluster munitions and still markets the products on its website. The company markets propulsion systems and warheads for the cluster weapon systems GMLRS, MLRS and ATACMS. All three weapon systems full the denition under the Convention on Cluster Munitions. Furthermore, GenCorp is assumed to be involved in the production of nuclear weapons. GenCorps fully owned subsidiary, Aerojet, produces propulsion systems for missiles that have no function other than to deliver nuclear warheads.
GENERAL DYNAMICS
Excluded since: December 2005 Source: GES, NGPF Country: USA Industry: Aerospace and Defence Index: MSCI-WI, FTSE
The company acknowledged in 2005 that the company produces key components in cluster bombs. Yet, in 2008 the production is in abeyance and the weapon programs that the components were intended for have been terminated. However, the company is still marketing cluster bombs on its website and has no corporate policy related to its involvement in cluster munitions.
HANWHA CORPORATION
Excluded since: January 2008 Source: GES, NGPF Country: South Korea Industry: Commodity Chemicals Index: Not included in KLPs benchmark index
The company produces various forms of military equipment, among these dierent types of munitions. The company have conrmed the production, and cluster munitions are marketed on the companys website.
HONEYWELL
The company is, through its subsidiary Honeywell Technology Solutions Inc, responsible for repair, development, calibration, operations and maintenance of instrumentation and recording of data from simulated nuclear detonations at White Sands Missile Range in New Mexico.
L-3 COMMUNICATIONS
L-3 Communications has conrmed to GES and to the Council on Ethics for the Norwegian Government Pension Fund (NGPF) that it produces components of cluster bombs. See further reasons for the exclusion of L-3 Communications under Human Rights.
LOCKHEED MARTIN
Lockheed Martin has developed and manufactured weapon systems for dispensing cluster munitions. The company markets components as well as three cluster munitions on its website.
NORTHROP GRUMMAN
The company is, according to its own press release, contractor for maintenance and upgrading of the US Air Forces Minuteman III ICBM. ICBM, short for Intercontinental Ballistic Missiles, is the main element of the US land based strategic nuclear weapons.
POONGSAN
Excluded since: January 2007 Source: GES, NGPF Country: South-Korea Industry: Metals and Mining Index: Not included in KLPs benchmark index
Poongsan produces various types of munitions for military use, including cluster bombes. On its website, the company describes three of these products. One shell is described as containing 88 bomblets, i.e. small, explosive submunitions that characterize cluster munitions. Another is described as used for blast, fragmentation, mining eects.
RAYTHEON
Excluded since: December 2005 Source: SPU Country: USA Industry: Aerospace and Defence Index: MSCI-WI, FTSE
The company produces, according to its own web-site, 3 JSOW (Joint Stand O Weapon), and cluster munitions to these: JSOW integrates the BLU-97 combined eects bomblets and the BLU-108 sensor fused weapon submunitions for area targets or armoured vehicles. These are considered as cluster weapons. This information is conrmed by Janes Information Group.
SAFRAN
Excluded since: January 2006 Source: NGPF Country: France Industry: Aerospace and Defence Index: MSCI-WI, FTSE
Safran is the mother company of companies Snecma and Sagem. In 2005, Janes Missiles and Rockets wrote EADS SPACE Transportation has signed a contract with the French armament procurement agency (DGA) for production of the M51submarinelaunched ballistic missile (SLBM) The contract covers series production of the M51 weapon system for a period of ten years. Worth more than EUR3 billion, it includes a xed tranche and several conditional options. EADS SPACE Transportation is prime contractor for the programme, while SNECMA, SNPE, DCN, Thales and Sagem are the main subcontractors. According to information on the companys website, Serco Group is a partner in the company AWE Management limited (AWEML), which is the operating company to the British Atomic Weapons Establishment (AWE). AWE is a government owned company which produces and maintains the UKs nuclear weapons.
SERCO GROUP
Excluded since: January 2008 Source: NGPF Country: UK Industry: Environmental and Facilities Services Index: MSCI-WI
SINGAPORE TECHNOLOGIES ENGINEERING

Excluded since: December 2001 Source: GES, NGPF Country: Singapore Industry: Aerospace and Defence Index: MSCI-WI
The Ministry of Foreign Aairs in Thailand acknowledge to the International Campaign to Ban Landmines (ICBL) that a fully-owned subsidiary of Singapore Technologies Engineering continues to produce anti-personnel mines. The company conrms that mines are still being produced, however not for exports but only for the defence of Singapore and only when we are asked to.
TEXTRON
Excluded since: December 2008 Source: GES Country: USA Industry: Industrial Conglomerate Index: MSCI-WI
Textron develops and markets cluster munitions and their submunitions, which are prohibited according to the Convention on Cluster Munitions. The company conrms that it still oers e.g. the cluster munitions CBU-105 and it has developed and is manufacturing the submunition BLU-108, which is not in compliance with the convention. The company says that a redesign of the weapon in order to be compliant with the convention would be one possible solution, but the company is not convinced that this would be the best solution for eliminating the unacceptable risk to civilians. A daughter company, Rocketdyne, conducts upgrading and testing of thrusters ICBMs. These missiles have no function other than to carry nuclear warheads. for the USAs MX Peacekeeper.
UNITED TECHNOLOGIES
Excluded since: January 2006 Source: SPU Country: USA Industry: Aerospace and Defence Index: MSCI-WI, FTSE
36
Financial eect of the exclusions

In the long term, we assert that responsible investing is the best for our customers returns. We balance our portfolios in order to minimize the eect of the exclusions. At the same time, KLP is working systematically to inuence the excluded companies in order to reinstate them into our investment portfolios.
The statistical analyses indicate little impact on our funds performance. The probability that the deviation does not exceed 0.7 percent during one year is 95 percent. The probability that the deviation is not exceeding 0.7 percent during any of the years during a ve year period is 77 percent. The registered deviations show that two out of six years have been outside a 95 percent condence interval (2005 and 2008). So far this year, KLPs benchmark index KLP World, which is adjusted for companies excluded due to violations of international norms, has a level of return that is 0.74 percent higher than the MSCI World. Note that this is a quantitative analysis of the potential inuence on the KLP World Index only. When we exclude a company, it is excluded from all portfolios within all relevant asset classes, and the excluded securities will be replaced with higher weights in others within the same industry group. Consequently, the real eect of the responsible investment strategy is diicult to measure. There might also be dierences between the eects on dierent regions. Nevertheless, the largest eect on the deviation, both positive and negative, will be the weight of the single excluded security (index weight) and its performance relative to its peers within a certain period of time. However, since data only dates back to 2002, it is a too short time period to draw any solid conclusions about the long-term nancial eects.
Monthly return deviation, KLP World and MSCI World

The gure shoes the variation between a portfolio of global stocks with negative screening and a global portfolio without exclusions (December 2002-April 2009).
0,6% 0,4% 0,2% 0,0% -0,2% -0,4% -0,6%
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
Dec 07
Dec 08
Annual return deviation, KLP World and MSCI World

2003 -0,31 % 2004 0,09 % 2005 0,84 % 2006 -0,69 % 2007 -0,29 % 2008 -0,82% 2009 (April 30) 0,74%
Published by: KLP Design: Dinamo Red. Production: RK Grask AS Photographs: KLP and iStock June 2009
38
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SRI June 2009 Eng

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SRI June 2009 Eng

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Responsible investments

SRI report June 2009

Assets under management

Liquidity, money market

Both active and passive management

The KLP mutual funds

SRI REPORT 2009 PAGE 5

Jeanett Bergan Head of Responsible Investments

One in eight Norwegians have their pensions with KLP.

KLP OG SAMFUNNET SIDE 7

How to be a responsible investor

To sell the stocks the last resort

Active ownership and engagement

S ert AE klud GES

M siden: STO ert AL klud e GES

VOTING AT GENERAL MEETINGS

Say on pay subject of the year

Federal demand after crisis support

NORWEGIAN CODE FOR CORPORATE GOVERNANCE ON REMUNERATION:

Voting right according to the law

Strong shareholder signal

NORWEGIAN PUBLIC LIMITED COMPANIES ACT ON REMUNERATION:

S ert AE klud GES

M siden: STO ert AL klud e GES

krik trisk Eks e: I Kild d: Fran Elek Lan stri: MSCI-W

A useful tool for change

ENGAGEMENT IN CONTROVERSIAL COUNTRIES

Challenging business in Burma

Policies for preventing complicity

M siden: STO ert AL klud e GES

krik trisk Eks e: I Kild d: Fran Elek Lan stri: MSCI-W

Climate reporting produces useful information

CARBON DISCLOSURE PROJECT

NORWEGIAN MICROFINANCE INITIATIVE

Ready to make its rst investments

Two separate funds

Many investment opportunities

Responsible investments from a lowcost leader.

Voting at general meetings

THE NORWEGIAN CODE OF PRACTICE FOR CORPORATE GOVERNANCE

2008 1,539 33,703 10%

Number of items 4,362 1,695 1,308 522 140 36 19 8,082

Against the board or abstain 9% 4% 10% 30% 16% 0% 37% 10%

Number of items 120 88 21 21 8 3 2 2 27 292

Number of items in 2008 356 202 153 61 72 2 32 14 150 1,042

Number of items 135 61 41 28 4 3 0 272

Against the board or abstain 1% 5% 7% 36% 50% 0% 8%

Number of items in 2008 131 67 42 32 2 0 0 274

SRI REPORT 2009 PAGE 19

Dialogue, observation and exclusion

Sources and analyses

Companies take responsibility

2008 2008 2008 2009

2008 2008 2008 2009

2008 2007 2008 2009

2009 2009 2008 2009

SRI REPORT 2009 PAGE 23

2006 2008 2007 2009

2007 2007 2008 2009

2001 2001 2008 2009

* The company is excluded for several reasons.

SRI REPORT 2009 PAGE 25

ts Four requiremen t for reinstatemen

CHINA MENGNIU DAIRY