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ResponsibleinvestmentsSRI report June 2009

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Co n t e n t s

4 A bo u t K L P 6 Dear reader 8 Ho w to be a res ponsi b le in ves tor 1 0 Sa y on pa y s u bjec t

of t he year

1 2 Go vernance on e t hics

1 3 C ha l lenging b usiness in B urma

1 4 C lima te re por ting prod uces usef u l informa tion

1 5 N M I: Read y for i ts firs t in ves tmen ts

1 7 Vo ting a t genera l mee tings

2 0 Dia log ue, o bser va tion and exc l usion

2 2 Reins ta ted com panies

2 5 Exc l uded com panies

R e a s o n s f o r e x c l

u s i o n :

2 8 H uman rig h ts 3 0 La bo ur rig h ts 3 1 En vironmen t 3 3 Corr u p tion 3 4 Wea pons prod uc tion

or sa les

3 7 Financia l effec ts of t he exc l usions

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About KLP KLP as a nancialservices companyKommunal Landspensjons-kasse (KLP) is one ofNorways largest life insurancecompanies. The companyprovides pension, nance andinsurance services to the localgovernment sector and statehealth enterprises, as wellas other businesses both inpublic and private sectors.

KLPs main product is occupa-tional pensions and pensionfund services. More than onein eight Norwegians havetheir pensions with KLP. It alsoprovides insurance servicesboth to individuals and thepublic sector. KLP Eiendomis one of the largest propertymanagers in Norway. KLP pro-vides a wide range of lendingservices and will open its ownbank in 2009.

The mutual ownership modelof the parent company, inwhich a customer is also anowner, means that KLP mustalways supply products andsolutions in consultation

with its customers. KLP wasfounded in 1949 and has atotal of 700 employees.

Asset classesKLP manages 202 Billion

Norwegian Crowns, dispersedamong several asset classes(see diagram below).

KLP Kapitalforvaltning andKLP Fondsforvaltning areresponsible for all of KLPsinternal asset manage-ment, while KLPs FinanceDepartment controls assetallocation.

Investments in the main portfolio(the common portfolio) by asset class(December 31, 2008).

Assets undermanagementKLP Kapitalforvaltning andKLP Fondsforvaltning, bothsubsidiaries of KLP, managearound 155 Billion Nor-wegian Crowns in nan-cial instruments for KLP(December 31, 2008), andits subsidiaries, as well asother institutional and privatecustomers. In total, we haveapproximately 1,500 unitholders in our funds. KLPFondsforvaltning is Norwaysthird largest fund manage-ment company.

6%Equities

22%Short-termbonds

14%Liquidity,moneymarket

36%Long-termbonds

11%Lending

11%Property

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5/40SRI REPORT 2009PAGE 5

Both active andpassive managementWe provide both active andpassive equity and xed in-come funds, as well as hedgefunds. All funds comply withKLPs Policy for ResponsibleInvestments.

KLP Fondsforvaltning isNorways leading index fundprovider. We offer global andregional index funds in theUS, Europe and Asia withinthe MSCI World DevelopedUniverse. We also have aNorwegian index fund whichtracks the Oslo Brs Bench-mark Index.

Our index management takesadvantage of a secure andautomatic system. Oureffective management andeconomies of scale, allow usto provide low-cost assetmanagement. Annual mana-gement fees are as low as0.10 percent.

The KLPmutual fundsFixed income funds:KLP Aktiv RenteKLP Rentefond IIKLP Pensjon I-IIKLP Obligasjon IKLP Obligasjon Global IKLP Obligasjon Global IIKLP Statsobligasjon

Equity funds:KLP AksjeNorgeKLP AksjeNorge Indeks I-IIKLP AksjeNordenKLP AksjeEuropa Indeks I-IIKLP AksjeGlobal Indeks I-IVKLP AksjeUSA Indeks I-IIKLP AksjeAsia Indeks I-II

Please read more about ourfunds on www.klp.no.

Regional distribution of KLPs equityinvestments by market value(May 13, 2009).

OthermanagementPrivate equityKLP invests in private equity(including venture capital),mainly through private equityfunds. These investments arelong-term commitments. KLPsprivate equity program is still inan early stage of development.As one of the larger Norwegianinvestors, KLP is often repre-sented in these funds investorcommittees. These committeesfunction as a link between thefunds and its investors.

External managementIn addition to private equity,KLP has also invested in otherexternal equity and xed in-come funds, which are mainlyused in areas where KLP doesnot have internal expertise.MicronanceKLP has made a commitmentto invest 75 Million Nor-wegian Crowns in the Nor-wegian Micronance Initiative(NMI) over the coming years.

All of KLPs investments are

subject to KLPs Policy forResponsible Investments.

20%Norway

6%Nordicregion

74%World

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As long as KLP has had a responsible invest-ment strategy, openness has been fundamental.Each half-year since 2002 we have announcedwhich companies are excluded from our invest-ments and why. We believe it is about takingresponsibility for our choices, with a genuinedesire and aim that this will lead to change.

It is therefore a particular pleasure that withthis update of the list we can in fact welcomeas many as seven companies back into ourcircles. KLP has been in dialogue with severalof the companies. We believe that in this waythese companies take responsibility, engagein the matter, listen to their shareholders anddemonstrate that they do not wish to beassociated with or involved in matters worthyof criticism. That is precisely the aim of KLPswork in this area!

During the rst half of 2009 it was our aim tomore extensively exercise KLPs and the KLPmutual funds voting rights at general meetingsof Norwegian listed companies. We believethat in this work openness is also an impor-tant prerequisite for our customers and otherstakeholders condence in us both as capitalowners and asset managers. On KLPs websiteyou can read about how we vote at general

meetings in companies quoted in Norway, theprinciples upon which we act, as well as thosecases in which we have voted against a boardsrecommendations to its general meeting.

KLP and KLPs mutual funds are minority own-ers in listed companies. This means that ourdirect inuence is not always so great.Nevertheless we believe that by explainingour views and arguments we promote goodcorporate governance in the market. In additionwe believe that openness helps to create ahealthy and constructive debate that will movethe work forward both for shareholders andcompanies.

Corporate governance and ethics are complexquestions that seldom have totally clear cutanswers. By publishing this report we wishto display what we stand for as a responsibleinvestor and owner, as well as what we aredoing to live up to our ambitions. Excludingcompanies from our investments is only onetool that we have available. Exercising owner-ship rights is another.Enjoy the report!

Jeanett BerganHead of Responsible Investments

Dear reader,Regardless of whether it is a matter of excluding companiesor voting at general meetings, our customers and other stake-holders will know what we are doing. In this update, it is apleasure to announce that several companies are readmitted to

KLPs portfolios.

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7/40KLP OG SAMFUNNETSIDE 7

One in eightNorwegianshave their

pensionswith KLP.

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How to be aresponsible investorOur rst and foremost responsibility is to meet our nancialobligations. KLP manages 202 Billion Norwegian Crowns and

more than a half of a million Norwegians have their pensionswith KLP. It is our responsibility to enhance long-term value.However, we are not indifferent as to how we achieve this goal.

There are two rationales for KLP having astrategy for responsible investments. First,we do not want to contribute to violations ofinternational norms. We want companies tocomply with the minimum standards that theinternational community has agreed upon.

Second, we assert that sustainable businesspractices will reap long-term rewards. Pensionfund providers, such as KLP, are long-terminvestors, and as such, we gain little fromcompanies short-term returns, if they damagelong-term performance. To operate respon-sibly and sustainably is also an effective riskmanagement strategy.

We use three tools for inuencing companiesand society towards sustainable development.These are active ownership and engagement,exclusion, and sustainable investments.

Active ownership and engagementThe most direct way for a shareholder to

inuence a company is voting at annualgeneral meetings. KLP and KLPs mutual fundsexercise their voting rights.> Voting (page 10 and 17)

We are working with a number of key initia-tives in which KLP engages with companies.The purpose of these initiatives is to promotea responsible business conduct that is sustain-able 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 compa-nies on responsible and sustainable businessconduct. We work systematically in order to avoidexclusions and to be able to reinstate excludedcompanies in our investment portfolios.> Dialogue, observation and exclusion (page 20)

To sell the stocks the last resortKLP will not compromise ethics for prots. In2002, KLP was the rst Norwegian lifeinsurance company to establish a comprehen-sive ethical investment policy whichencompasses its entre nancial investmentuniverse.

Our last resort is excluding companies fromour investment universe. We excludecompanies when violations are severe or

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systematic, and these companies seem un-willing to change or improve their behaviour.Our exclusion criteria are based on inter-national norms. That is, we exclude companiesthat are associated with breaches in UN andother international conventions on humanrights, labour rights, environment andcorruption. Furthermore, we do not investin companies involved in the production ofweapons which violate basic humanitarianprinciples (e.g., nuclear weapons, landminesand cluster bombs). Finally, we do not investin the tobacco industry.> Reasons for exclusion (page 28)

Sustainable investmentsKLP believes in combining prot with othergains. By considering the environment, peopleand communities, investment risk can be re-duced and/or a higher prot can be created.Performing this systematically, requires deci-sions to be based on a solid, nancial basis.We are gradually gaining a better understand-

ing of sustainable investments, and stronglybelieve that this is important for the futureway of managing assets.> Norwegian Micronance Initiative (page 15)

International normsOur strategy is based on internationallyrecognized principles. By joining the UNGlobal Compact, we committed ourselves to:n Support and respect the protection ofinternationally proclaimed human rights.n Respect labour rights, including freedom ofassociation, the right to collective bargaining,anti-discrimination, and the elimination offorced labour and child labour.n Promote environmental responsibility.n Work against corruption.

We also expect companies to act inaccordence with the OECDs Guidelines forMultinational Enterprises.

KLP is a signatory of the UN Principles forResponsible Investments (UNPRI) and hasmade the commitment to incorporateenvironmental, social and governance issuesinto its investment decision-making processesand ownership practices, as well as to

follow the other UNPRI principles. For KLP, theUNPRI is an important forum for cooperatingwith other likeminded investors on importantresponsible investment issues.

KLPs responsible investment strategy

Active ownership and engagement Exclusions Sustainable investments

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saying voluntarily they will put the matter onthe agenda in future, including Intel, OccidentalPetroleum and Hewlett-Packard.In Canada the three large banks, CanadianImperial Bank of Commerce, the Royal Bank ofCanada and the National Bank of Canada have,as the rst Canadian companies, agreed tohold an advisory ballot on senior managementremuneration during 2010.

Strong shareholder signal

In Switzerland, companies like Nestl, UBSand Credit Suisse had remuneration on thegeneral meeting agenda for the very rst time.It is Swiss shareholders that have pressuredthe countrys largest companies about anannual vote on remuneration, and the resultis a strong signal to the companies that this iswhat the shareholders want. Holding a balloton remuneration is not a statutory requirementin Switzerland, as in other European markets.

There are also several companies whose re-muneration report has been rejected this year.Examples of high-prol protests over execu-tive pay obtaining the majority of shareholderssupport are Shell and Royal Bank of Scotland.

Voting right according to the lawIn Norway the shareholders right to expresstheir opinion on the remuneration structure isstatutory. Since 2007 the Public Limited Com-panies Act has required companies to reporton guidelines for setting senior managementremuneration at the general meeting. The bal-lot for the general setting of remuneration isadvisory, whilst it is binding for those parts ofthe remuneration that are share-based.

KLPs and KLPs mutual funds voting decisions

are based on theNorwegian Code of Practice for Corporate Governance. As a result, we havevoted against the boards recommendations onseveral general meetings. You can nd moreinformation on these on www.klp.no.

The majority of the instances of our votingagainst the recommendation of the board areprecisely regarding the declaration on senioremployee salary and other remuneration. Ourobjections relate among other to inadequateceilings on bonuses or the lack of perfor-mance criteria as a basis for bonus. We havealso voted against excessive severance payagreements and against option schemes thatinclude the board in addition to management.

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 thegeneral manager and other leading personnel.

n The guidelines shall state whether it shall be allowed to pay remuneration in addition to basic salary, whetheconditions 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 sharesor the development of the share price; pension schemes; severance pay arrangements; any form of variableelement 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 unlessotherwise 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 bestated in the minutes of the board meeting.

n The declaration shall contain guidelines for the coming nancial year, as well as include a statement settingout the policy on the remuneration during the previous nancial year. ( 6-16a and 5-6)

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Challengingbusiness in BurmaTo conduct business in a country which such a challenginghuman rights situation as Burma puts strong demands oncorporations. KLP therefore engages in dialogue withcorporations in high risk industries in the country.

The dialogue has started with eight compa-nies, who all are involved in the largest oil andgas projects in Burma: Total, Chevron, Daewoo,Petronas, KOGAS, Gail, PetroChina og PTT.

The OECD has classied Burma as a weak gover-nance zone. Weak institutions make economicand social development difficult, and therefore,investments should be made cautiously, whilecontinually focusing on ethics. Good corporatebehaviour can contribute to increase wealth, andthe transfer of technology and capacity, as wellas promote international norms in the Burmesecommunity. However, companies also risknancing the military regime, thus indirectly con-tribute to e.g. human rights violations. Conductingbusiness in a high risk country places demandson companies, especially with respect to ethicalstandards and governance systems.

Policies for preventing complicityThe dialogue with these companies addressesthe degree to which a company has policies andpractices that can prevent complicity. We alsolook at the ways in which the company

contributes to the Burmese society in terms ofe.g. economic or educational projects, and howthe company uses its presence to positivelyinuence the military regime.

Total is one of the companies weve had theclosest dialogue with. Eventhough operations inBurma are controversial, the company has goodexamples of how to deal with the challenges.

For instance, Total has a specic Code of Conduct,management tool and reporting for its opera-tions in Burma. These address compliance withinternational conventions, workers rights, forcedlabour, as well as risk assessment of operationsand partners. Total has also established a systemin which anyone experiencing any kind of humanright violation committed by the Burmese militaryshould report it immediately to Total. By enforcingthis system, Total has created a zone around itsoperations where human rights violations canbe prevented, despite the fact that forced labouris a practice used by the army in infrastruc-ture projects. An additional example is Totalssubstitute for unions, which are illegal in Burma.The workers are organized in groups of 50, eachhaving one representative, who then frequentlymeet with the management in order to discussworking conditions.

KLPs engagement with companies operating incontroversial countries has started in Burma. Thisis a joint initiative with other institutionalinvestors through GES Investment Services.

ENGAGEMENT IN CONTROVERSIAL COUNTRIES

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Ready to make itsrst investmentsMeasuring social performance of its fundings will be in focus whenthe Norwegian Micronance Initiative (NMI) will make its rst

investments this summer.

NMI has a double bottom line it seeks bothsocial and nancial returns. While nancialperformance is easy to measure, measuring thesocial performance is more challenging. As itmakes its rst investments NMI will seek to useindustry best practices and investments disciplineto measure the social impact of its funding.

In doing this, NMI will press its fund managersand the micronance institutions to use manyof the indicators developed by the industry tomeasure and report on social performance. Theseindicators range from the micronance institu-tions routines and policies, to concrete results ofits loans, such as what segments of society clientscome from, the drop-out rate, percent of clientssaving or percent of clients living below povertylevel.

Measuring social performance will be a priorityof NMI. We will make sure that we are obtaininginformation and continuous reporting from ourinvestment partners, says Richard Weingarten,Managing Director of NMI.

Many investment opportunitiesNMI expects to nalize its investment strategyin June and to make its rst investments this

summer. Weingarten believes that the micro-nance industry has responded well to the globalnancial crisis. Interest rates and costs havegone up, to some extent, but in terms of portfolio

performance and risk, the industry has adoptedand managed quite well so far. The challenges areprimarily focused on limited liquidity and accessto capital, but from NMIs point of view that cre-ates attractive investment opportunities andallows our investment to have broader anddeeper development impact, Weingarten says.

Two separate fundsNMI has to different investment funds, andthese funds have different strategies. The NMIGlobal Fund will primarily invest in a variety ofother investment funds. Thus, it will be a fundof funds and will identify and invest in the bestmicronance international, regional and local fundmanagers. NMI Global Fund will invest in bothdebt and equity instruments.

NMI Frontier Fund will invest primarily in youngand emerging micronance institutions. These areinstitutions that have good prospects for attainingnancial sustainability within the next severalyears but that have not yet attracted signicantinvestment. NMI Frontier Fund will be moreequity-oriented than the Global Fund and thuswill assume considerably more nancial risk. NMIFrontier Fund will also take larger positions in themicronance institutions in which it invests, and

will be an active investor.The funds will focus their investments in Sub-Saharan Africa and South and Southeast Asia.

NORWEGIAN MICROFINANCE INITIATIVE

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Responsibleinvestmentsfrom a low-cost leader.

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THE NORWEGIAN CODE OF PRACTICE FOR CORPORATE GOVERNANCE

Voting atgeneral meetingsThe general meeting is an important arena for dialogue betweencorporate management and shareholders. As owner in many quotedcompanies, KLP and KLPs mutual funds use their voting rights actively

- both in Norway and abroad.The voting decisions of KLP and KLPs mutualfunds in Norwegian companies are discussedinternally, meeting for meeting. Our votingpolicy is based on theNorwegian Code ofPractice for Corporate Governance.

For our shares abroad, we vote by proxythrough our service provider Risk MetricsGroup. They vote according to the policy andcriteria we have set, which are based uponinternational principles for best practicecorporate governance. These shall protect ourinterests as owners not only with regards totraditional corporate governance and nancialissues, but also with regards to companiesenvironmental and social impacts. We vote in

favour of resolutions that are considered toenhance a long-term, sustainable value crea-tion for shareholders and other stakeholders.

By voting with the assistance of a serviceprovider specializing in this eld, we ensurethat we vote consistently and in consensuswith other international investors. Votingactivities are also an important platform forour cooperation with other investors.

As of today, KLP votes in the following 15markets: Australia, Canada, France, Germany,Hong Kong, Ireland, Japan, the Netherlands,New Zealand, Norway, Portugal, Singapore,Switzerland, the UK and the USA.

1. Implementation of the Code of Practice for Corporate Governance2. Business3. Equity and dividends4. Equal treatment of shareholders and

transactions with close associates5. Freely negotiable shares6. General meetings7. Nomination committee

8. Corporate assembly and board of directors:composition and independence

9. The work of the board of directors10. Risk management and internal control11. Remuneration of the board of directors12. Remuneration of the executive management13. Information and communications14. Take-overs15. Auditor

Adherence to the Code of Practice is based on the comply or explain principle whereby companiesmust either explain how they comply with each of the recommendations or explain why they havechosen an alternative approach. The Code of Practice in detail is available on www.nues.no. The codeaddresses the following issues:

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Themes Number For the board Against the Number ofof items recommendation board or abstain items in 2008

Directors related 4,362 91% 9% 20,775Routine/business 1,695 96% 4% 5,518Capitalization 1,308 90% 10% 2,891Non-salary compensation 522 70% 30% 2,267Mergers and re-organizations 140 84% 16% 909Preferred/bondholder meetings 36 100% 0% 82Anti-takeover related 19 63% 37% 219Total 8,082 90% 10% 32,661


Directors related 120 30% 70% 356Compensation 88 26% 74% 202Routine/business 21 29% 71% 153Corporate governance 21 38% 62% 61Health and environment 8 0% 100% 72General economic issues 3 33% 67% 2Human rights 2 0% 100% 32Anti-social proposals 2 100% 0% 14Other 27 44% 56% 150Total 292 30% 70% 1,042

Management resolutions

Shareholder resolutions

Voting internationally

As of April 30, 2009 2008 2007Number of general meetings 411 1,539 45Number of items 8,374 33,703 300Percent of items KLP and KLPs mutual funds voted against management 10% 10% 8%KLP and KLPs mutual funds have voted internationally since late 2007.

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KLP and KLPs mutual funds have voted at approximately90 per cent of the Norwegian general meetings they have hadvoting rights at January 1 - April 30, 2009.

10%Not voted

90% Voted

Resolutions

Voting in Norway

As of April 30, 2009 2008Number of general meetings 30 29Number of items 272 274Percent of itemswhere KLP and KLPs mutual funds votedagainst management 6% 1%Percent of itemswhere KLP and KLPs mutual funds abstained 2% -KLP does not have statistics for its voting activities in Norway in 2007.


Routine/business 135 99% 1% 131Directors related 61 95% 5% 67Capitalization 41 93% 7% 42Non-salary compensation 28 64% 36% 32Shareholder resolutions 4 50% 50% 2Mergers and reorganizations 3 100% 0% 0Anti-takeover related 0 - - 0Total 272 92% 8% 274

During 2009 KLP and KLPs mutual funds have worked moresystematically to exercise their voting rights at Norwegian companies

general meetings. See information on how they have voted on www.klp.no.

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Dialogue, observationand exclusion

KLPs experience is that the synergy betweendialogue and exclusion is an effective way ofinuencing companies. It adds credibility toour engagement activities, as does the trans-parency around our strategy and exclusions.

We also meet with companies that are notexcluded. This is our way of signalling that KLPdoes care about the business practices in thecompanies invested. Dialogue with companiesis usually a combination of meetings withmanagement, e-mail correspondence andtelephone conferences.

Sources and analysesThe almost 2,000 companies in KLPs invest-ment universe are continuously monitored.KLPs primarily utilizes the Global EthicalStandard Investment Services (GES) analysesas the foundation for our engagement andexclusions. In addition, we also rely on deci-sions of the Ethical Council for the NorwegianGovernment Pension Fond Global (NGPF). KLPs motivation for the latter, is because ourcustomers and owners, mostly from publicsector, have policies to follow the guidelinesof NGPF.

GES screens 9,000 news sources, including UNbodies, business magazines and news letters.If a company is associated with unacceptable

business conduct, GES elucidates the incidentand contacts the company in order to get theircomments and to initiate a dialogue on inves-tors behalf. GES is also in dialogue with otherstakeholders in order to form an objectiveunderstanding of the incident.

If the analysis concludes that a particularcompany is associated with the incident ofviolation, and the company does not showsufficient willingness to take responsibility forthe incident and its consequences, GES willrecommend the company to be excluded, asa last resort.

All accusations require an official source, forinstance the UN or a government, or must beconrmed by the company involved.

Exclusion criteriaOur engagement and exclusions addressesa sustainable business conduct in line withinternational norms and conventions in thefollowing areas:n Human rightsn Labour rightsn Environmental degradationn

Corruptionn Production of weapons violating humanitarian principlesn Production of tobacco

KLP engages in dialogue both with excluded companies and companiesthat are under observation. The goal in both cases is improvementin policies and practices.

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IncidentResearch

and analysis

Dialogueand

engagement

Satisfactoryresults?

No exclusion

Exclusion

YES

NOOur goal isalways to inuencecompanies towards responsible and sustainable value creation.

Company dialogue15.11.200815.5.2009 Company Status TopicAES Excluded Human rightsGrupo Ferrovial Reinstated June 2009 EnvironmentMonsanto Reinstated June 2009 EnvironmentNorsk Hydro Previously under observation Labour rightsOdfjell Under observation Labour rights and environmentThales Reinstated June 2009 Corruption and weapons

Critical observationCompanies under critical observation are close to be excluded. As a rst stepbefore excluding, KLP will try inuencing through an active dialogue.

Eutelsat CommunicationsIn June 2008 Eutelsat discontinued thebroadcast of NTDTV, a regime independentChinese TV channel to China. The companyclaimed it was due to irreparable techni-cal problems with its satellite, but its criticsclaim that there is evidence that the realreason is to gratify the Chinese regime inorder to enter the Chinese market. The

European Parliament has adopted a WrittenDeclaration which urged the company toimmediately resume the transmission andprovide reasons for the suspension.

Exxon MobilExxon operates an oil and gas project at theSakhalin Island, in waters that constitute theonly known feeding grounds for the westerngray whale, listed as a critically endangeredspecies. The number of observed whales inthe area declined dramatically during 2008.The International Union for Conservation ofNature (IUCN), which is researching the area,

has therefore concluded that all activitiesplanned for 2009 should be postponed untilthe western gray whale population has beenfully monitored and assessed.

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Companies takeresponsibilityKLP works systematically to reduce the number of excludedcompanies and is pleased to see that companies do improvetheir practices. In this round, we are happy to reinstate asmany as seven companies.

Progress:

1 2008

2 20083 2008

4 2009

Marathon OilMarathon Oil was excluded due to the samereason as Exxon Mobil: suspicion of corrup-tion in Equatorial Guinea (EG). Allegedly, anumber of substantial payments have beenmade by oil companies to individual EGofficials, their family members, or entitiescontrolled by officials or family members.

Marathon Oil has demonstrated an anti-corruption policy and robust managementsystems and controls. In addition, the compa-ny has engaged actively in the developmentof the anti-corruption program EITI in EG.Dialogue with the company and stakeholdersveries this engagement and responsibility.Recently the company has also received aletter from the SEC stating that the investiga-tion is completed and that they do not intendto recommend any enforcement action.

Exxon MobilExxon was excluded from KLPs investmentsdue to suspicion of corruption in EquatorialGuinea (EG). Six American oil companies, in-cluding Exxon, were included into investiga-tions by the US Senate Permanent Subcom-mittee on Investigations in relation to theiroperations in EG. According to the commit-tee, a number of substantial payments havebeen made by oil companies to individualEG officials, their family members or entitiescontrolled by these.

Exxon has submitted responses to questionsraised by the SEC. The company has sub-sequently demonstrated engagement towardsanti-corruption and has actively participatedin the development of the Extractive Indus-tries Transparency Initiative (EITI). Dialoguewith the company and other stakeholdersveries the commitment to combat corrup-tion and inuence the government of EG.

Excluded:December 2004Reason:Corruption

Source: GESCountry: USAIndustry: Oil and gasIndex: MSCI, FTSE

Excluded:December 2004Reason:CorruptionSource: GESCountry: USAIndustry: Oil and gasIndex: MSCI, FTSE

Progress:

1 2008

2 2008

3 2008

4 2009

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1 The violation has ceased.2 The company has adopted a responsible course of action.3 The company has taken a proactive and precautionary approachto improve routines and prevent future violations.4 The companys action points (point 1-3) are veriable.

4 r e q u i r e m e n t s

Grupo FerrovialGrupo Ferrovial was involved in the construc-tion of a highway mapped through severalareas of great natural value and protected byenvironmental laws. In 2007, the EuropeanCommission (EC) repeatedly sent warningletters to the Polish government about therouting of the Via Baltica expressway, andtook Poland to the European Court of Justice.The environmental consent was cancelled bya Polish court and the project halted. Polishauthorities are responsible for planningthe routing, but also Grupo Ferrovial wasresponsible as they initially were reluctant toseriously address the environmental risk.

Grupo Ferrovial has addressed the situationand proactively worked for a satisfactorysolution and improved the companies riskmanagement. Dialogue with the companyand stakeholders veries this engagementand responsibility.

MonsantoMonsanto was excluded due to unsatisfactoryresponsibility for the environmental effects ofits systematic dumping of highly toxic wastein landll sites during the 1960s and 1970s.A report from the Environment Agency (EA)regarding the Broscin site in Wales, showsan ongoing contamination of groundwater bypolychlorinated biphenyls (PCBs), which aresaid to be one of the most toxic chemicalsever made by humans. A variety of toxicchemicals have been found in soil, herbage,surface water and groundwater. The site hasbeen called one of the most contaminated inthe country.

Monsanto today has a robust environmentalmanagement system and controls in place.Dialogue with the company and stakehold-ers veries that the company will collaboratewith the government in order to solve thesituation and clean up the site.

Excluded: June 2007Reason:Environment

Source: GESCountry: SpainIndustry:Constructionand engineeringIndex: MSCI, FTSE

Progress:

1 2008

2 20073 2008

4 2009

Excluded: June 2007Reason:EnvironmentSource: GESCountry: USAIndustry: Fertilizersand agricultural chemicalsIndex: MSCI, FTSE

Progress:

1 2009

2 2009

3 2008

4 2009

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ThalesThales was excluded in 2005 due to produc-tion of cluster bombs. In addition Thalesbecame associated with corrupt businesspractices in 2006, involving payments ofbribes to South Africas former DeputyPresident Jacob Zuma in relation to an armsdeal. This is conrmed in a Durban HighCourt Judgement. Additionally, a formerThales director has openly accused Thales ofsystematic corrupt business practices whichhas led to French judicial investigations. Thealleged activities indicated systematic corruptbusiness activities.

However, there have not been any reports onrecent incidents. The company has recog-nized stakeholders concerns and has estab-lished a robust anti-corruption system andcontrols reecting the companys signicantrisk in the area.

Also, dialogue with the company and stake-holders veries that the company no longerhas any involvement in the production ofcluster bombs. Thales is as of May 2009 stillexcluded from the Norwegian GovernmentsPension Fund Global (NGPF) because ofcluster munitions production. Thales hasdirectly to KLP and publicly stated that it nolonger has any involvement in the productionor sales of cluster munitions. France has also

signed the new Oslo Convention on ClusterMunitions. As a result KLP believes it is rea-sonable to deviate from the NGPF conclusionin this particular case.

PetroChinaAn explosion at a chemical plant killed andinjured workers, and lead to approximately100 tons of pollutants leaking into the Son-ghua river. Information about the accidentwas withheld for nine days. PetroChina haspaid for the remediation, and implemented anew HSE management system.

Excluded:December 2005Reason: Corruptionand cluster munitionSource: GES, NGPFCountry: FranceIndustry: Aeorspaceand defenceIndex: MSCI, FTSE

Progress (corruption)

1 2007

2 2007

3 2008

4 2009

Excluded: June 2006Source: GESCountry: Hong KongIndustry: Oil and gasIndex:Not included in KLPsbenchmark index

Progress

1 2001

2 2001

3 2008

4 2009

ChevronThe contractual relationship with the Nigeriangovernments security forces puts Chevron athigh risk for being associated to complicityto violations of human rights. The reason forexclusion was that the security forces usedtransport equipment contracted to Chevron,with the companys authorization, in an attackon two villages in the Warri Delta, and in anviolent encounter in a hostage situation.

In dialogue with the company and stakehold-er, it is veried that Chevron has implement-ed the Voluntary Principles for Human Rights in its Nigerian operations with a high level ofcommitment.

Progress

1 2006

2 2008

3 2007

4 2009

Excluded:December 2002Reason: Human rightsand environmentSource: GESCountry: USAIndustry:Oil and gasIndex: MSCI, FTSE

RichemontRichemont used to own a large share ofBritish American Tobacco, but has now soldits share in the tobacco industry.

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Excluded companiesHuman rightsn AES USA Power Producers and Energy Tradersn Alstom France Electrical Equipmentn China Mengniu Dairy China Food Productsn Dongfeng Motor Group Hong Kong Automobile Manufacturer NEWn Incitec Pivot Australia Fertilizers and Agricultural ChemicalsNEWn L-3 Communications* USA Aerospace and Defencen Vedanta Resources* UK Metals and Miningn Wesfarmers Australia Hypermarkets and Super Centersn Yahoo! USA Internet (Software and Services)Labour rightsn Bridgestone Japan Tires and Rubbern Group 4 Securicor UK Security and Alarm Servicesn Toyota Motor Japan Automobile Manufacturern Wal-Mart Stores USA Hypermarkets and Super CentersEnvironmentn Barrick Gold Canada Metals and Mining NEW (Feb.)n Chevron USA Oil and Gasn DRDGold South Africa Goldn Duke Energy USA Electric Utilitiesn Freeport McMoRan USA Materialsn Rio Tinto UK, Australia Metals and Miningn Vedanta Resources* UK Metals and Mining Corruptionn Hess USA Oil and GasWeapons productionn Alliant Techsystems USA Aerospace and Defencen BAE Systems UK Aerospace and Defencen Boeing USA Aerospace and Defencen EADS Netherlands Aerospace and Defencen Finmeccanica Italy Aerospace and Defencen GenCorp USA Aerospace and Defencen General Dynamics USA Aerospace and Defencen Hanwha Corporation South Korea Commodity Chemicalsn Honeywell USA Aerospace and Defencen L-3 Communications* USA Aerospace and Defencen Lockheed Martin USA Aerospace and Defencen Northrop Grumman USA Aerospace and Defencen

Poongsan South Korea Metals and Miningn Raytheon USA Aerospace and Defencen Safran France Aerospace and Defencen Serco Group UK Environmental and Facilities Servicesn Singapore Technologies Engineering Singapore Aerospace and Defencen Textron USA Industrial Conglomeraten United Technologies USA Aerospace and DefenceTobacco productionn Altadis Spain Tobaccon Altria Group USA Tobaccon British American Tobacco UK Tobaccon Imperial Tobacco UK Tobaccon Japan Tobacco Japan Tobaccon Lorillard USA Tobaccon Philip Morris USA Tobaccon

Reynolds American USA Tobaccon Swedish Match Sweden Tobacco

* The company is excluded for several reasons.

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Our goalis to inuencecompaniestowardsresponsible and sustainable value creation.

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Fo ur req uiremen tsfor reins ta temen t 1 T he re por ted inciden t

has ceased.

2 T he com pan y has ado p ted a res ponsi b le co urse

of ac tion.

3 T he com pan y has ta ken

a proac ti ve and preca u tionar y

a p proac h to im pro ve ro u tines

and pre ven t f u t ure vio la tions.

4 T he com pan ys ac tion poin ts

( poin t 1-3) are veria b le.

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Progress:

1

2

3

4

Progress:

1

2

3

4

Progress:

1

2

34

Human rightsThe Universal Declaration of Human Rights is an important pillar of worldwidehuman values. It is our responsibility as an investor and owner to support and promote

adherence to this important declaration. As a consequence, nine companies associatedwith human rights violations have been excluded from our investment universe.

ALSTOM

Excluded since:December 2007Source: GESCountry: FranceIndustry:Electrical EquipmentIndex: MSCI-WI, FTSE

CHINA MENGNIU DAIRY

Excluded since:December 2008Source: GESCountry: ChinaIndustry:Food ProductsIndex: Not included in KLPsbenchmark index

Alstom is associated with complicity in human rights violations ina hydro-electric project in Sudan. In August 2007, a UN SpecialRapporteur from the Human Rights Council called upon companiesinvolved in the Merowe Dam project to halt the operations due toconcerns over human rights violations in connection with large

resettlements involving 50,000 people. Among the companies isAlstom, which is the main supplier of electrical equipment to theproject. None of the companies has followed the recommendationfrom the UN Special Rapporteur.

In September 2008, Chinese officials announced that infant milkpowder produced in the country had been contaminated with thenon-alimentary chemical melamine. The contamination led to thedeath of four infants and approximately 94,000 sickened with symp-toms such as kidney stones and kidney failure. At the heart of thescandal stand some of the largest dairy companies in China, one of

them being China Mengniu Dairy. Subcontractors have watered downthe milk to increase the quantity, and in order to increase the proteinlevel melamine has been added as it boosts nitrogen levels.

AESExcluded since:December 2008Source:GESCountry: USAIndustry: Power ProducerIndex: MSCI-WI, FTSE

AES operates the hydroelectric dam Chan 75 in Panama, whichaccording to several UN Special Rapporteurs has been associatedwith violations of the human rights of the indigenous Ngbepeople. During the summer of 2008, urgent appeals were sent tothe State of Panama from the UN, expressing concern over thearbitrary displacements, loss of housing, destruction of agricultu-

ral crops and the excessive use of force and detainingof members of the community that opposed to project. Theconstruction of the dam can result in the ooding of the indi-genous Charco la Pava community, but the community has notbeen consulted.

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NEW

Progress:

1

2

3

4

DONGFENG MOTOR GROUP

Excluded since: June 2009Source: NGPFCountry: Hong KongIndustry:Automobile manufacturerIndex: Not included in KLPsbenchmark index

Dongfeng Motor Group sells military equipment to the governmentof Burma. The current sanctions of both the EU and the US towardsBurma make sale, supply, transfer or export of armes and relatedmateriel to Burma illegal. The exclusion of the company from ourinvestment universe, is a consequence of the ethical guidelines of theNorwegian Government Pension Fund - Global, saying thatinvestments in companies selling arms or military equipment tostates which are on the list of countries whose government bondsare not investable, are to be avoided for the fund.

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SRI REPORT 2009 PAGE 29

Progress:

1

2

3

4

L-3 COMMUNICATIONSHOLDINGS

Excluded since:December 2005Source: GESCountry: USAIndustry:Aerospace and DefenceIndex: MSCI-WI, FTSE

The US armys investigation about the conditions in the AbuGhraib prison describes several instances and practices ofhuman rights abuses where not only soldiers but also Titanemployees allegedly were involved or present. In 2003-2004,the US army held hundreds of prisoners in various prisons inIraq. Titan has been acquired by L-3 Communications, who iscontinuing to supply linguist and translator services to the USarmy and therefore should adopt a human rights policy address-ing operations in sensitive countries such as Iraq and Afghani-stan. See further reasons for exclusion of L-3 Communicationsunder Weapons production.

Progress:

1

2

3

4

VEDANTA RESOURCES

Excluded since:December 2008Source: GES, NGPFCountry: UKIndustry:Metals and MiningIndex: MSCI-WI, FTSE

Vedanta Resources is in the process of establishing an aluminiumproduction complex consisting of a bauxite mine and alumina reneryin Orissa in India. In establishing its operation the company has report-edly 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 localauthorities, breached Indian environmental laws, mislead authorities,and caused environmental degradation. Other accusations includeillegal production expansions, irresponsible handling of hazardouswaste, violations against tribal peoples, deplorable wages, anddangerous working conditions in the mines and factories.

Progress:

1

2

3

4

WESFARMERS

Excluded since:December 2007Source: GESCountry: AustraliaIndustry: Hypermarketsand Super CentresIndex: MSCI-WI, FTSE

Wesfarmers is associated with illegal exploitation of naturalresources in Western Sahara, thus indirectly funding Moroccosillegal occupation of the country. The practice of import-ing phosphate rock from the concerned territory has beenconrmed by the company. In 1975, the International Court of Justice ruled that Morocco has no legal claims to Western Saharaand consequently not to its natural resources. In 2002, theexploitation of the natural resources of colonised territories Western Sahara in particular was declared illegal in an opinionissued by the UN Under-Secretary General for Legal Affairs.

Progress:

1

2

3

4

YAHOO!

Excluded since:December 2005Source: GESCountry: USAIndustry:Internet (softwareand services)Index: MSCI-WI, FTSE

Yahoo stands criticised for having passed on Internet userinformation of a Chinese journalist to Chinas state securityleading to a ten-year imprisonment for the journalist. The trans-fer of information is conrmed by Chinese court documents andcompany statements. The company has during 2008 launcheda Business and Human Rights Program to raise the awarenesson the issue within the company. It has also together with otherinformation technology companies in the Global NetworkInitiative launched a set of principles that aim to protectfreedom of speech and privacy in the information andcommunication technologies industry.

Progress:

1

2

3

4

INCITEC PIVOT

Excluded since: June 2009Source: GESCountry: AustraliaIndustry:Fertilizers & AgriculturalChemicalsIndex: MSCI-WI

The company is importing phosphate rock from Wester Sahara.The region is occupied by Morocco and the International Courtof Juste has ruled that Morocco has no legal claims to WesternSahara, and consequently Morocco is not entitled to exploit itsnatural resources. The exploitation of the natural resources ofcolonised territories, Western Sahara in particular, has also beendeclared illegal in an opinion issued by the UN Under-SecretaryGeneral for Legal Affairs.NEW

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Labour rightsEvery employee has fundamental labour rights. The ILO set core standards governingfreedom of association, forced labour, child labour and discrimination. Companies should

apply these standards on a global basis. Four companies have been excluded from ourinvestment universe associated with labour rights violations.

Progress:

1

2

3

4

Progress:

1

2

3

4

BRIDGESTONE

Excluded since:December 2006Source: GESCountry: JapanIndustry:Tires and RubberIndex: MSCI-WI, FTSE

GROUP 4 SECURICOR

Excluded since: June 2008Source: GESCountry: UKIndustry:Security and Alarm ServicesIndex: MSCI-WI

The UN Mission in Liberia has published a report on humanrights conditions at rubber plantations, including a planta-tion owned by Firestone, a Bridgestone subsidiary. The reportportrays child labour as a serious problem, supporting theallegations forwarded in a lawsuit against the company led bythe 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, childrenbegin to work at the age of nine or ten in order to help theirparents meet the quotas set by the company. The plantation isthe largest plantation in the world, and the largest employer inLiberia. An important step forward is the collective bargainingagreement that was signed at the plantation in summer 2008.

Group 4 Securicor (G4S) is reported to have committedsystematic violations on labour rights in twelve countries.Violations in at least ve countries can be veried by officialbodies, 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 unionistsand breaches of binding collective agreement. An important stepforward is that the company in late 2008 signed a global agree-ment with the International trade union alliance UNI (UnionNetwork International).

Progress:

1

2

34

TOYOTA MOTOR

Excluded since:December 2005Source: GESCountry: JapanIndustry: Automobile Manufacturer

Index: MSCI-WI, FTSE

The Toyota Motor Philippines Company Workers Associationunion alleges that the management of Toyota Motor Philippineshas impeded the right to organise and collective bargainingand recurred to illegal dismissals of workers. The case is underscrutiny by a Philippine court and by the International Labour

Organizations (ILO) Committee of Freedom of Association. TheILO lists a number of actions taken by the company to challengethe certication of a union and to intimidate employees in theirpreference of union.

Progress:

1

2

3

4

WAL-MART STORES

Excluded since: June 2003Source: GES, NGPFCountry: USAIndustry: Hypermarketsand SupercentersIndex: MSCI-WI, FTSE

A steady stream of media reports and law suits testify of Wal-Marts notoriously bad labour practices. The company is criticisedfor regulatory and legal non-compliance in several areasrelated to labour rights. Specic incidents concern child labour,sweatshop conditions at factories, discrimination of women andanti-union behaviour. In 2008, Massachusetts highest courtruled in favour for some 67,500 current and former employees

of Wal-Mart who claimed the company systematically withheldtheir wages. The attorney on the case has more than 30 othersimilar cases pending against Wal-Mart in other states.

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EnvironmentThe 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

34

Progress:

1

2

34

CHEVRON

Excluded since: June 2004Source: GESCountry: USAIndustry: Oil and GasIndex: MSCI-WI, FTSE

DRDGOLD

Excluded since:May 2007Source: NGPFCountry: South AfricaIndustry:Gold

Index: Not included in KLPsbenchmark index

In 2004, a trial was initiated against Chevron in Ecuador. Thecompany stands accused of systematically dumping billions of gallonsof highly toxic, carcinogenic waste into pits dug into the earth. Thishappened in the Amazonas jungle where Chevron operated fromthe 1960s to the 1990s. The trial is ongoing, and both parties aredoing scientic studies of the area. Chevron contests several of thestudies made, saying that they are scientically unreliable. However, inautumn 2008, an independent expert found that 42 out of 46 toxicwaste pits inspected contain high levels of toxins, and that most ofthem were excluded from the remediation program that Chevron hasagreed upon with the government of Ecuador.

Progress:

1

2

3

4

DUKE ENERGY

Excluded since:December 2006Source: GESCountry: USAIndustry:Electric UtilitiesIndex: MSCI-WI, FTSE

Duke Energy has chosen not to install pollution control equipmentat several of its plants. This in combination with the age of the plantsand their large quantity of emissions indicate that the company doesnot manage its most central environmental risks in an adequate way.The impacts of its operations are signicant on the environment andpublic health. In 2006, the US Supreme Court granted permissionfor the Environmental Protection Agency to proceed with a lawsuitagainst Duke Energy under the Clean Air Act. The case stems from thelate 1990s when Duke Energy endeavoured upon a modernisationprogram, extending the life of eight of its oldest coal-red electricityplants for another 20 years.

The company is associated with extensive and irreversible damage tothe environment. According to the Norwegian Government PensionFunds Ethical Councils assessment, the companys practice of riverinedisposal is in breach of international norms, and the question may beraised whether the company violates national environmental regula-tions as well.

Progress:

1

2

3

4

BARRICK GOLD

Excluded since:February 2009Source: GES, NGPFCountry: CanadaIndustry:Metals and MiningIndex: MSCI, FTSE

Barrick Gold, the worlds larges gold producer, causes extensiveenvironmental degradation by its operations in the Porgera goldmine in Papua New Guinea. The company makes use of a naturalriver system to transport and dispose of mine waste, which hasa negative impact on the populations life and health, includingboth the residents of the actual mining area and people who livealong the river downstream of the mine. The biggest threat isthe heavy metals contamination, especially from mercury, pro-duced by the tailings. The environmental damage that riverinedisposal may cause are well known, but the company has notimplemented any appreciable measures to prevent or reducethis damage.

NEW

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Progress:

1

2

3

4

RIO TINTO

Excluded since:December 2008Source: GES, NGPFCountry: UK, AustraliaIndustry:Metals and MiningIndex: MSCI-WI, FTSE

Rio Tinto Group is a joint venture partner with Freeport McMo-Ran in the Grasberg mine in Indonesia, the worlds largest goldmine and second largest copper mine. The mine discharges largeamounts of tailings directly into a river; approximately 230,000tonnes or more per day. The discharges will be increasing infuture in line with expansion of the mine. There is a high riskthat acid rock drainage from the waste rock and tailings dumps

will cause lasting ground and water contamination. The mine isdeemed to remain protable until 2041, which is expected toresult in severe long-term environmental degradation. There areno indications that these practices will be changed.

Progress:

1

2

3

4

VEDANTA RESOURCES

Excluded since:December 2007Source: GES, NGPFCountry: UKIndustry:Metals and MiningIndex: MSCI-WI, FTSE

Vedanta Resources is establishing an aluminium produc-tion complex in the Indian state of Orissa. In this process thecompany has, according to local authorities, breached Indian en-vironmental laws, mislead authorities and caused environmentalharm. These include the discharge of toxic alkaline and heavymetal laden water into rivers and groundwater. Several square

kilometres of forest in one of Indias most biodiverse regions willbe cleared. Reportedly, Vedanta has also contributed to humanrights abuses, including forced relocations, and violence andintimidation against local residents. For instance, the proposedhilltop mine is one of the local tribes most sacred sites. Otheraccusations include illegal production expansions, irresponsiblehandling of hazardous waste and dangerous working conditions.

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Progress:

1

2

3

4

FREEPORT MCMORAN

Excluded since: July 2006Source: GES, NGPFCountry: USAIndustry: Metals and MiningIndex: MSCI-WI, FTSE

PT Freeport Indonesia, a subsidiary to Freeport McMoRanCopper and Gold, has received heavy criticism for polluting thesurroundings of its Grasberg mine in Indonesia. The mine isthe worlds largest gold mine and second largest copper mine.It is one of the worlds most criticized mining ventures. Themain concerns relate to acid rock drainage and riverine tailingsdisposal. The company disposes 230,000 tonnes per day ofheavy metal containing mine tailings into local rivers, a practicethat has been widely outlawed. The government has accusedthe company of negligence and ordered the company to takemeasures to minimise the effect on the environment.

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CorruptionCorruption is one of the major economic challenges hindering economic and sustainabledevelopment in many countries. As an inves tor, KLP supports the international battle against

corruption by excluding companies that have been associated with severe or syste-matic corrupt ac tivities. As a consequence, one company has been excluded fromour investment universe for corruption activities.

Progress:

1

2

3

4

HESS

Excluded since:December 2004Source: GESCountry: USAIndustry:Oil and GasIndex: MSCI-WI, FTSE

Six large American oil companies, including Hess, were investi-gated by a Subcommittee of the US Senate in relation to theiroperations in Equatorial Guinea. According to the committee anumber of substantial payments have been made by oil compa-nies to individual E.G. officials, their family members, or entitiescontrolled by these. Hess has submitted responses to questionsraised by the SEC. So far, SEC has not given any formal state-

ment regarding its investigation. The company has subsequentlydemonstrated a robust anti-corruption management system.

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Weapons productionSome weapons hit harder, and affect more civilians than others. KLP does not want tocontribute to manufacture, sale or use of weapons that do not differentiate between

civilian and military targets. As a consequence, 19 companies involved in the productionor sale of landmines, and nuclear and cluster weapons have been excluded.

ALLIANT TECHSYSTEMS

Excluded since:December 2005Source: GES, NGPFCountry: USAIndustry: Aerospace and DefenceIndex: Not included in KLPsbenchmark index

BAE SYSTEMS

Excluded since: January 2006Source: NGPFCountry: UKIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

EADS

Excluded since:December 2005Source: NGPFCountry: NetherlandsIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

BOEINGExcluded since: January 2006Source: NGPFCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

Alliant Techsystems has been involved in many weapon projects as a supplierof special components as well as main contractor for whole cluster munitions.It still markets some of them on its website. The company has for instanceproduced the cluster bomb CBU-87/B, which contain 202 pieces of BLU-97explosive devices. This is one of the most commonly used air-delivered clusterweapons. This information is veried by Janes Information Group.

FINMECCANICA

Excluded since: January 2006Source: NGPFCountry: ItalyIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

BAE Systems, Finmeccanica and EADS have together formed the joint ventureMBDA. The ownership structure, according to EADS homepage is 37,5 percentBAE, 37,5 percent EADS and 25 percent Finmeccanica. This is also conrmedon the homepages of BAE Systems and Finmeccanica. According to JanesAir Launched Weapons, MBDA is under contract to develop and produce theASMP-A missile for the French armed forces. ASMP-A is described as a nuclearwarhead air-to-surface missile.

BAE Systems, Finmeccanica and EADS have together formed the joint ventureMBDA. 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 thehomepages of BAE Systems and Finmeccanica. According to Janes Air LaunchedWeapons, MBDA is under contract to develop and produce the ASMP-A missile forthe French armed forces. ASMP-A is described as a nuclear warhead air-to-surfacemissile.

EADS (European Aero-Nautics Defence and Space Company) has conrmedthat the company is part of the joint venture TDA. TDA produces, among otherthings, the artillery grenade PR Cargo, which the company describes as follows:This is a submunition projectile for 120 mm ried mortars. Equipped with dualeffect-submunitions, it engages dismounted troops and light armored vehicles.According to Janes Information Groups database InfantryWeapons, PR Cargocontains 16 bomblets each. This type of weapon is an area-weapon and isprimarily used against personnel.

The company is, according to its own home page a suppler of various formsof maintenance and upgrade services for the Minuteman III ICBM. ICBM, shortfor Intercontinental Ballistic Missiles, is the main element of the US land basedstrategic nuclear weapons.

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GENCORP

Excluded since: January 2008Source: GES, NGPFCountry: USAIndustry: Aerospace and DefenceIndex: FTSE. Not included in KLPsbenchmark index

GenCorp has manufactured special components for cluster munitions and still mar-kets the products on its website. The company markets propulsion systems and war-heads for the cluster weapon systems GMLRS, MLRS and ATACMS. All three weapsystems full the denition under the Convention on Cluster Munitions. Furthermore,GenCorp is assumed to be involved in the production of nuclear weapons. GenCorpsfully owned subsidiary, Aerojet, produces propulsion systems for missiles that have nfunction other than to deliver nuclear warheads.

GENERAL DYNAMICS

Excluded since:December 2005Source: GES, NGPFCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

The company acknowledged in 2005 that the company produces key com-ponents in cluster bombs. Yet, in 2008 the production is in abeyance and theweapon programs that the components were intended for have been termi-nated. However, the company is still marketing cluster bombs on its websiteand has no corporate policy related to its involvement in cluster munitions.

HANWHA CORPORATION

Excluded since: January 2008Source: GES, NGPFCountry: South KoreaIndustry: Commodity ChemicalsIndex: Not included in KLPsbenchmark index

The company produces various forms of military equipment, among thesedifferent types of munitions. The company have conrmed the production, andcluster munitions are marketed on the companys website.

HONEYWELL

Excluded since: January 2006Source: NGPFCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

The company is, through its subsidiary Honeywell Technology Solutions Inc,responsible for repair, development, calibration, operations and maintenance ofinstrumentation and recording of data from simulated nuclear detonations atWhite Sands Missile Range in New Mexico.

L-3 COMMUNICATIONS


L-3 Communications has conrmed to GES and to the Council on Ethics forthe Norwegian Government Pension Fund (NGPF) that it produces componentsof cluster bombs. See further reasons for the exclusion of L-3 Communicationsunder Human Rights.

LOCKHEED MARTIN


Lockheed Martin has developed and manufactured weapon systems for dis-pensing cluster munitions. The company markets components as well as threecluster munitions on its website.

NORTHROP GRUMMAN

Excluded since: January 2006Source: NGPFCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

The company is, according to its own press release, contractor for maintenanceand upgrading of the US Air Forces Minuteman III ICBM. ICBM, short for Intcontinental Ballistic Missiles, is the main element of the US land based strategicnuclear weapons.

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RAYTHEON

Excluded since:December 2005Source: SPUCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

The company produces, according to its own web-site, 3 JSOW (Joint Stand OffWeapon), and cluster munitions to these: JSOW integrates the BLU-97 com-bined effects bomblets and the BLU-108 sensor fused weapon submunitionsfor 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: NGPFCountry: FranceIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

Safran is the mother company of companies Snecma and Sagem. In 2005, Janes Mis-siles and Rockets wrote EADS SPACE Transportation has signed a contract with theFrench armament procurement agency (DGA) for production of the M51submarine-launched ballistic missile (SLBM) The contract covers series production of the M51weapon system for a period of ten years. Worth more than EUR3 billion, it includesa xed tranche and several conditional options. EADS SPACE Transportation is primecontractor for the programme, while SNECMA, SNPE, DCN, Thales and Sagem are themain subcontractors.

SERCO GROUP

Excluded since: January 2008Source: NGPFCountry: UKIndustry:Environmental

and Facilities ServicesIndex: MSCI-WI

According to information on the companys website, Serco Group is a partnerin the company AWE Management limited (AWEML), which is the operat-ing company to the British Atomic Weapons Establishment (AWE). AWE is agovernment owned company which produces and maintains the UKs nuclearweapons.

SINGAPORE TECHNOLOGIESENGINEERING

Excluded since:December 2001Source: GES, NGPFCountry: SingaporeIndustry: Aerospace and DefenceIndex: MSCI-WI

The Ministry of Foreign Affairs in Thailand acknowledge to the InternationalCampaign to Ban Landmines (ICBL) that a fully-owned subsidiary of SingaporeTechnologies Engineering continues to produce anti-personnel mines. Thecompany conrms that mines are still being produced, however not for exportsbut only for the defence of Singapore and only when we are asked to.

UNITED TECHNOLOGIES

Excluded since: January 2006

Source: SPUCountry: USAIndustry: Aerospace and DefenceIndex: MSCI-WI, FTSE

A daughter company, Rocketdyne, conducts upgrading and testing of thrustersICBMs. These missiles have no function other than to carry nuclear warheads.for the USAs MX Peacekeeper.

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TEXTRON

Excluded since:December 2008Source: GESCountry: USAIndustry: Industrial ConglomerateIndex: MSCI-WI

Textron develops and markets cluster munitions and their submunitions,which are prohibited according to the Convention on Cluster Munitions. Thecompany conrms that it still offers e.g. the cluster munitions CBU-105 and ithas developed and is manufacturing the submunition BLU-108, which is notin compliance with the convention. The company says that a redesign of theweapon in order to be compliant with the convention would be one possiblesolution, but the company is not convinced that this would be the best solu-tion for eliminating the unacceptable risk to civilians.

Poongsan produces various types of munitions for military use, includingcluster bombes. On its website, the company describes three of these products.One shell is described as containing 88 bomblets, i.e. small, explosive sub-munitions that characterize cluster munitions. Another is described as used forblast, fragmentation, mining effects.

POONGSAN

Excluded since: January 2007Source: GES, NGPFCountry: South-KoreaIndustry: Metals and MiningIndex: Not included in KLPsbenchmark index

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Financial effectof the exclusionsIn the long term, we assert that responsible investing is the best for ourcustomers returns. We balance our portfolios in order to minimize the effectof the exclusions. At the same time, KLP is working systematicallyto inuence the excluded companies in order to reinstate them into ourinvestment portfolios.

The statistical analyses indicate little impact on

our funds performance. The probability that thedeviation does not exceed 0.7 percent duringone year is 95 percent. The probability that thedeviation is not exceeding 0.7 percent duringany of the years during a ve year period is 77percent. The registered deviations show that twoout of six years have been outside a 95 percentcondence interval (2005 and 2008).

So far this year, KLPs benchmark index KLPWorld, which is adjusted for companies excludeddue to violations of international norms, has alevel of return that is 0.74 percent higher thanthe MSCI World. Note that this is a quantitativeanalysis of the potential inuence on the KLPWorld Index only.When we exclude a company,it is excluded from all portfolios within all rele-

vant asset classes, and the excluded securities

will be replaced with higher weights in otherswithin the same industry group. Consequently,the real effect of the responsible investmentstrategy is difficult to measure. There mightalso be differences between the effects ondifferent regions. Nevertheless, the largesteffect on the deviation, both positive andnegative, will be the weight of the singleexcluded security (index weight) and its per-formance relative to its peers within a certainperiod of time.

However, since data only dates back to 2002,it is a too short time period to draw any solidconclusions about the long-term nancialeffects.

Annual return deviation, KLP World and MSCI World2003 2004 2005 2006 2007 2008 2009 (April 30)-0,31 % 0,09 % 0,84 % -0,69 % -0,29 % -0,82% 0,74%

Monthly return deviation, KLP World and MSCI WorldThe 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

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Published by: KLPDesign: Dinamo Red.Production: RK Grask ASPhotographs: KLP and iStock

June 2009

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sri june 2009 eng

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