Responsible investmentsSRI Report December 2011

We want dialogue!Follow KLP’s responsible investmentson our blog: blogg.klp.no

Content 4 About KLP 6 Dear reader 8 How to be a responsible investor10 Owners disagree with boards more 12 Climate reporting is improving 13 Link between climate and financial results 15 We exercise our voting rights 16 Voting18 Dialogue, observation and exclusion 19 Observation 21 Excluded companies

Companies excluded for: 24 Human rights 28 Labour rights 29 Environment 32 Corruption 33 Weapons production37 Index performance of ethical investments

4 sri-report 2011PAGE5

About KLP KLP as a financial services companyKommunalLandspensjonskasse(KLP)isoneofNorway’slargestlifeinsurancecompanies.Thecompanyprovidespension,financingandinsuranceservicestothelocalgovernmentsectorandstatehealthenterprises,aswellasotherbusinessesbothinpublicandprivatesectors.

KLP’smainproductisoccupationalpensionsandpensionfundservices.MorethanoneineightNorwegianshavetheirpensionswithKLP.Thecompanyalsoprovidesinsuranceservicesbothtoindividualsandthepublicsector.KLPEiendomisoneofthelargestpropertymanagersinNorway.KLPprovidesawiderangeoflendingservicesandhasestablisheditsownbankin2009,KLPBanken.

Themutualownershipmodeloftheparentcompany,inwhichacustomerisalsoanowner,meansthatKLPmustalwayssupplyproductsandsolutionsinconsultationwithitscustomers.KLPwasfoundedin1949andhasatotalof760employees.

Asset classesTheKLPGroupmanages285BillionNorwegiankroner,dividedbetweenseveralassetclasses(September30,2011).

KLPKapitalforvaltningandKLPFondsforvaltningareresponsibleforallofKLP’sinternalassetmanagement,whileKLP’sFinanceDepart­mentcontrolsassetallocationinthecommonportfolio.

Investmentsinthemainportfolio(thecommonportfolio)byassetclass(September30,2011).

Assets under managementKLPKapitalforvaltningandKLPFondsforvaltning,bothsubsidiariesofKLP,managearound193BillionNor­wegiankronerinfinancialinstruments(September30,2011).

TheymanageassetsforKLPanditssubsidiaries,aswellasotherinstitutionalandprivatecustomers.Intotal,KLPFondsforvaltninghas12.000customersinitsfunds.KLPFondsforvaltningisNorway’sthirdlargestfundmanagementcompany.

Both active and passivemanagementWeprovidebothactiveandpassiveequityandfixedincomefunds,aswellashedgefunds.Wealsopro­videcombinationoffunds.AllfundscomplywithKLP’sPolicyforResponsibleInvest­ments.

KLPFondsforvaltningisNorway’sleadingindexfundprovider.Weofferglobalandregionalindexfundscoveringalldevelopedandemerg­ingmarketswithintheMSCIindexuniverse.

Ourindexmanagementtakesadvantageofasecureandautomaticsystem.Oureffectivemanagementandeconomiesofscale,allowustoprovidelow­costassetmanagement.Annual management fees are as low as 0.10 percent.

The KLPmutual fundsFixed income funds:KLPAktivRenteKLPRentefondIIKLPPensjonI­IIKLPObligasjonIKLPObligasjonGlobalI–IIKLPStatsobligasjon

Equity funds:KLPAksjeNorge KLPAksjeNorgeIndeksI­IIKLPAksjeNordenKLPAksjeEuropaIndeksI­IIKLPAksjeUSAIndeksI­IIKLPAksjeAsiaIndeksI­IIKLPAksjeGlobalIndeksI­IVKLPAksjeFremvoksendeMarkederIndeksI­IIKLPAksjeVerdenIndeks

Balanced fund:KLPKombinasjon

Pleasereadmoreaboutourfundsonwww.klp.no.

RegionaldistributionofKLP’sequityinvestmentsbymarketvalue(September30,2011).

Other managementPrivate equityKLPinvestsinprivateequity(includingventurecapital),mainlythroughprivateequityfunds.Theseinvestmentsarelong­termcommitments.KLP’sprivateequityprogramisstillinanearlystageofdevelop­ment.AsoneofthelargerNorwegianinvestors,KLPisoftenrepresentedinthesefunds’investorcommittees.Thesecommitteesfunctionasalinkbetweenthefundsanditsinvestors.

External managementInadditiontoprivateequity,KLPhasalsoinvestedinotherexternalequityandfixedincomefunds,whicharemainlyusedinareaswhereKLPdoesnothaveinternalexpertise.

MicrofinanceKLPhasmadeacommitmenttoinvest75MillionNor­wegiankronerintheNorwe­gianMicrofinanceInitiative(NMI)overthecomingyears.

All of KLP’s investments are subject to KLP’s Policy for Responsible Investments.

7 %Otherfinancialassets

22 %Short­termbonds

14 %Equities

34 %Long­termbonds

13 %Lending

11 %Property

26 %Norway

4 %NordicRegion

70 %World

6

Dear reader,A historic year is drawing to an end. A year which commenced with an uneasy Arab spring, a difficult European autumn, and is ending with North America having government debts greater than possible to imagine.Theeconomiesofmanycountrieshaverunofftherailsandovertheyearwehaveseenanumberofheadsofstatebowtothepressureofthepeopleandgiveuppower.Thatisgood.Theyhavenotsucceededinleadingtheircountriestowardssustainablevaluecreation.Nowcourageandvigourisneededtogetthesecountriesontotherighttrack.

Atthesametime,theautumnhasalsobroughtdramaticchangesinapositivedirec­tion.TheNorwegianMinisteroftheEnviron­mentandInternationalDevelopment,ErikSolheim,wasinvitedtoaseminaratKLPandhadjustreturnedfromavisittoMyanmar.Hewasfascinatedbythiscountrywhichisnowmovingfromastrictmilitarydictatorshiptoamoreopeneconomy.

AccordingtoAftenposten,TheinSein–theex­generalwhoisnowpresidentofBurma–issayingthat“SouthKoreatook15yearstobecomeademocracy.Weshallmanageitinone.”Thatisafantasticambition.Itis,there­fore,importantthattheworldcommunitynowrecognisestheverypositivesignalscomingfromthatcountry.Itishopedthatinthenearfuturewewillbeabletoliftthesanctions.Thecountryoffersexcitingopportunities.Invest­mentsfromcompaniesandengagementbyorganisationscancontributetofurtherdevel­opmentofthecountry.

InNovember,wehostedaCDPseminaroncorporateclimatereporting.EventhoughNorwegiancompaniesremainatthebottom

inclimatereportingintheNordicregion,weareseeinganimprovement.Sevennewcomp­aniesreportedtheiremissionsforthefirsttimethisyearandtwelvecompaniesimprovedtheirreportingperformance.Thatisapleasingdevelopment.

Whenthisreportispublished,theinter­nationalclimatenegotiationswillbeinprogressinDurban.Wearenotparticularlyoptimistic,buthope,aswealsohopedbeforeCopenhagenandCancun,thatthenegotia­tionswillproduceresults.Wemustmakethecapitalmarketscapableofintegratingcli­matecostsonasolidbasis.Thenegotiationsareimportanttoinvestorsandcompanies,inordertoestablishpredictableregulatoryframeworks.TheInternationalEnergyAgency,IEA,statesinitsannualreport,WorldEnergyOutlook,thatitwillbedifficulttoachievethe2°target,thattheworldisonitswaytoanincreaseof3.5°andthatwithcurrentpoliciesanincreaseof6°appearslikely.Accordingtotheexpertsatemperatureincreaseof6°wouldbecatastrophic.Anincreaseof3.5°willbedramatic.Whattheworldneedsnowarepoliticianswithcourageandvigour.

Happyreading!

Jeanett BerganHeadofResponsibleInvestments

Forthe daysto come.

8 sri-report 2011PAGE9

How to be aresponsible investor

acompanyisvotingatannualgeneralmeetings.

> KLP’s and the KLP mutual funds’ voting activities (page 15–17)

> Owners disagree with boards more (page 10–11)

To sell the stocks – the last resortKLPwillnotcompromiseethicsforprofits.In2002,KLPwasthefirstNorwegianlifeinsurancecompanytoestablishacompre­hensiveethicalinvestmentpolicywhichencompassesitsentirefinancialinvestmentuniverse.

Divestmentwillbealastresortwhenviolationsaresevereorsystematic,andcomp­aniesseemunwillingtochangeorimprovetheirbehaviour.

> Reasons for exclusion (page 25)

Sustainable investmentsSustainableinvestmentmeanstheresultsinvestmentsachievebasedoneconomic,socialandenvironmentalconsiderations.Allthreemustbeassessedassatisfactorywithinordinaryinvestmentcriteriabeforeaninvestmentisundertaken.

KLPwelcomesadditionalsustainableprojectsintoitsportfolio.InvestmentsshouldprimarilybeundertakenincollaborationwithNorwegianoperatorsandincountriesofparticularinteresttoNorwegianbusiness.Thefocusisinvestmentsingoodmanagementofnaturalresourcesinthewaterorforestryandagriculturesectors.ExistinginitiativessuchastheNorwegianMicrofinanceInitiative(NMI)arebeingincludedintheportfolioandadditionalprojectsareunderconsideration

> KLP is a partner in the Norwegian Microfinance Initiative (NMI)

International normsOurstrategyisbasedoninternationallyrecognizedprinciples.KLPisamemberoftheUNGlobalCompactandourexclusionswillprimarilybeduetocomplicitywithUNconventionsortheOECDGuidelinesforMultinationalEnterprises.

KLPisalsoasignatoryoftheUNPrinciplesforResponsibleInvestments(UNPRI)andhasmadethecommitmenttoincorporateenvironmental,socialandgovernanceissuesintoourinvestmentdecision­makingprocessesandownershippractices.OurimplementationofthePRIisratedeveryyear.

KLP’sresponsibleinvestmentstrategy Active ownership and engagement Exclusions Sustainable investments

Our first and foremost responsibility is to meet our financial obligations. KLP manages 285 Billion Norwegian kroner 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 indifferent as to how we achieve this goal.

TherearetworationalesforKLPhavingastrategyforresponsibleinvestments.First,wedonotwanttocontributetoviolationsofinternationalnorms.Wewantcompaniestocomplywiththeminimumstandardsthattheinternationalcommunityhasagreedupon.

Second,weassertthatsustainablebusinesspracticeswillreaplong­termrewards.Pensionfundproviders,suchasKLP,arelong­terminvestors.Wegainlittlefromcompanies’short­termreturns,iftheydamagelong­termperformance.Tooperateresponsiblyandsustainablyisalsoaneffectiveriskmanagementstrategy.

Conduct based and product based criteriaOurengagementandexclusionsaddressasustainablebusinessconductinlinewithinternationalnormsandconventionsinthefollowingareas:nHumanrightsnLabourrightsnEnvironmentaldegradationnCorruptionnBusinessethicsnTherightsofindividualsinsituationsofwar

orconflictnOtherfundamentalethicalnorms

KLPengagesindialoguewithcompaniesinbreachoftheseconductbasedcriteria.

KLPalsohaveproductbasedexclusioncriteria.KLPdonotinvestincompaniesproducing:nWeaponsviolatinghumanitarianprinciples

(e.g.,nuclearweapons,landminesandclusterbombs)

nTobacco

Weusethreetoolsforinfluencingcompaniesandsocietytowardssustainabledevelopment.Theseareactiveownershipandengagement,exclusion,andsustainableinvestments.

Active ownership and engagementWeareworkingwithanumberofinitiativesinwhichKLPengageswithcompanies.Thepurposeistopromotearesponsiblebusinessconductthatissustainableinthelong­term.> Sustainable Value Creation> Controversial Countries Engagement> Carbon Disclosure Project (page 12–13)

Alsoreadabout:> Dialogue, observation and exclusion

(page 18)

Adirectwayforashareholdertoinfluence

3 tools

10 sri-report 2011PAGE11

Owners disagree with boards moreMore resolutions were voted down by general meetings on the OsloBørs. Additionally, more items were approved against major opposition.

Duringthisyear’sannualgeneralmeetingsseason,14companiesfoundthatinatotalof33itemsmorethan20percentoftheshareholdersvotedagainsttheboard’sproposal.Remunerationtomanagement,equity­basedbonusoroptionsprogrammesaswellascapitalincreasearetherecurringsubjectsinwhichshareholdersmostdisagreewiththecompany’sboardofdirectors.Electionofdirectorsisalsoanareawheretherehasbeendisagreementthisyear.Thereweremorecompaniesthanpreviouslywheretheboardfounditsproposalsvoteddown.Thetrendtowardsincreasedoppositionoverthelastthreeyearsisapparentinthetablebelow.

More shareholder proposalsInpreviousyearsfewproposedresolutionshavebeenputforwardbyshareholdersincompaniesontheOsloBørs.Thisyearwecancountasmanyas13itemsproposedbydifferenttypesofshareholders:organisations,privateindividualsandinstitutionalinvestors.Fiveoftheseproposalsalsoreceivedsufficientsupporttobeapproved(atDNOInternational,SagaTankersandMorpol).

Fewer large capital increasesWearepleasedtoseethattherehavebeen

significantlyfewermajorcapitalincreasesforgeneralpurposes.Lastyearwevotedagainst19suchmandates,butonlyhalfthatnumberthisyear.KLP’sandtheKLPmutualfunds’upperlimitformandateswithoutspecificpurposeistenpercentofthesharecapital.

More shareholders are participatingAslightlylargerproportionofownersontheOsloBørshaveusedtheirvoteatcompanygeneralmeetingsthanhaspreviouslybeenthecase.Averageparticipationwas54percent(51and52percentin2009and2010).

ThelargestproportionofownerengagementhasbeenatHafslund,EDBErgoGroup,Bonheur,CamilloEitzenandFairstarHeavyTransport,whichallhadover80percentparticipationattheirgeneralmeetings.AtthebottomwefindQuesterreEnergy,KongsbergAutomotive,RocksourceandSevanMarine,whichhad17percentorfewershareholdersvoting.

KLPhasexaminedtheresultsfromalmost130generalmeetingsandover1200generalmeetingitemsincompaniesnotedontheOsloBørs.

ANNUAL GENERAL MEETING SEASON

AgEndA ItEMs wIth MAjoR oPPosItIon:Company opposition Agenda itemNorwegianEnergyCompany 47% Approvalofmaximumnumberofoptions.FairstarHeavyTransport 45% Electionofsupervisoryboardforaperiodoffouryears.FairstarHeavyTransport 42% Grantdischargetothemanagementboard.FairstarHeavyTransport 42% Grantdischargetothesupervisoryboard.FairstarHeavyTransport 41% Reappointmemberandchairmanofthesupervisoryboard foraperiodoffouryears.FairstarHeavyTransport 41% Reappointmemberofthesupervisoryboardforaperiod offouryears.BridgeEnergy 40% Remunerationprinciplesforexecutivemanagement.FairstarHeavyTransport 38% Authorizationtoacquireuptoamaximumof10%oftheissued andoutstandingsharecapital.FairstarHeavyTransport 37% Approvetheannualfinancialstatementsandallocationofprofit totheretainedearningsacount.FairstarHeavyTransport 37% Approvetheexpansionoftheexistingshareoptionscheme foreligibleemployees.FairstarHeavyTransport 37% Autorizethejointjeetingofthemanagementboardandthe supervisoryboardtoissuenewsharecapitaland/orgrant rightstopurchasenewsharesinthecapitalofthecompany.SevanMarine 36% Noticeperiodforextraordinarygeneralmeetings.SevanMarine 33% Authorizationstoincreasethesharecapitalinconnectionwith employeestockoptionprogramandscopeofstockoption allocation.SevanMarine 33% Electionofdirectorstotheboardofdirectors.SevanMarine 31% Statementregardingestablishmentofsalaryandotherbenefits forseniormanagement.NorwegianProperty 29% Authorizationtoincreasethesharecapital.FornebuUtvikling 27% Authorizationtoincreasethesharecapitalinconnectionwith sharecapitalincreaseswithcontributionsincash.FornebuUtvikling 27% Authorizationtoincreasethesharecapital–issuenewshares assettlementinpropertytransactions.KongsbergAutomotiveHold. 27% Shareoptionprogram.OperaSoftware 26% Optionsforboardmembersandthechairman.ElectromagneticGeoservices 26% Generalauthorizationtoincreasethesharecapital.ElectromagneticGeoservices 26% Authorizationforexerciseofoptions.ElectromagneticGeoservices 26% Boardcompensation.SevanMarine 25% Authorizationtoincreasethesharecapitaltopartfinance capitalrequirementsofthecompany.NorwegianProperty 25% Declarationofremunerationpolicyfortheexecutivemanagement.

KLP’sandtheKLPmutualfunds’votingdecisionsarepublishedatwww.klp.no > English > Corporate Responsibility > Responsible owner.

2009 2010 2011Numberofcompaniesexperiencingmajoropposition(>20%)fromshareholders 7 16 14

Numberofitemswithmajoropposition(>20%)fromshareholders 16 30 33

Numberofitemsnotapprovedbythegeneralmeeting 0 2 8

AgEndA ItEMs votEd down:NorwegianEnergyCompany Authorizationtoincreasethesharecapitalrelatingtoemployeeincentive schemes.NorwegianAirShuttle Authorizationtoincreasethecompany’ssharecapital.NorthlandResources Approvalofarevisedstockoptionplan.Eltek Authorizationtoincreasethesharecapital.SagaTankers AuthorizationtoincreasetheCompany’ssharecapital.SagaTankers AuthorizationtoincreasetheCompany’ssharecapital.DNOInternational AuthorizationtoincreasetheCompany’ssharecapital.DNOInternational Authorizationforissuanceofconvertiblebondloan.

12 sri-report 2011PAGE13

Climate reporting is improving

CARBON DISCLOSURE PROJECT

The fact that Norwegian companies are poorer at reporting their greenhouse gas emissions than companies in our neighbouring countries is nothing new and is confirmed by this year’s results. What is pleasing is that the results show a number of encouraging signs.

Theencouragingsignsinthisyear’sNordicreport,seenfromtheNorwegianperspective,includethefollowing:nTwelveNorwegiancompaniesreceived

betterscoresthisyearthanlastyear:Atea,Cermaq,DnBNOR,DNOInternational,Frontline,NorskeSkog,Orkla,RoyalCaribbeanCruises,Salmar,Schibsted,Statoil,andStorebrand.Severalofthecompaniesaremakinggreatprogressandthisisabigplussincethevalueoftheinformationincreaseswiththequalityofreporting.

nCompaniessuchasSolstadOffshore,Cermaq,Telenor,RoyalCaribbeanCruises,andStatoilhavereportedexcitingandinnovativemeasurestoreducetheirimpactontheclimate.

nSevencompaniesthathavenotpreviouslyreportedtheiremissionsthroughCDParereportingthisyear.TheseareDOF,Ekornes,Eltek,Kongsberg,MarineHarvest,Odfjell,andSolstadOffshore.

nAsmanyas19outof71Norwegiancompaniesreceivingthisyear’srequestforinformationfromtheinvestorsreceiveditforthefirsttime.InviewofthistheNorwegianresultsfor2011aregood.

nNorskeSkoghadthebestresultoftheNorwegiancompanieswithafifthplaceintheNordicregion.Atea,StorebrandandEkornesalsogainedscoresamongstthe20bestNordiccompaniesintheCarbonDisclosureLeadershipIndex.

nEkornesdeservesparticularcreditforgoingstraightintotheCarbonDisclosureLeadershipIndexthefirstyearthecompanyhasreported.

Theinvitationtoreportoncorporatestrategyforgreenhousegasemissionsisthelargestofitskind.Theworld’s551largestinvestorswitttotalassetsofUSD71trillioninvited6000companiestoreport.ItisthefifthyeartheinvitationtoreportonclimatemattershasbeensenttoNorwegianandNordiccom­panies.KLPisaNorwegianpartnerintheproject.

Ofthe71Norwegiancompanies,41percentresponded(29companies).ThetotalresponsepercentageintheNordicselectionwas54percent.TheresponsepercentagesinDenmark,FinlandandSwedenwere53,67and63percentrespectively.

CERMAq:Cermaq has developed an ecological footprint model for its fish feed production business. This shows that only around 5 % of emissions stem from the company’s own operations; the rest occur in the supply chain. As a result, Cermaq has been able to reduce its carbon footprint by replacing certain marine ingredients with terrestrial alternatives.

DNB:A new headquarters is under construction in Oslo, which will gather 4,000 employees in one place. By using new building techniques and facilitating new ways of organising work the new headquarters is estimated to reduce energy consumption by 70 % and CO2 emissions by 50 % per employee in the Oslo area.

ROyAL CARIBBEAN CRUISES:In 2010 numerous initiatives were imple­mented to reduce our overall energy inten­sity, ranging from inroduction of new, more efficient vessels, optimising deployment of existing vessels, and installing new systems to help minimise hull resistance. The result of

these initiatives was a saving of approximately 60,000 metric tons of fuel.

SOLSTAD OFFShORE:Solstad Offshore has introduced the concept of climate­neutral operations in its shipping services for the energy sector. The company gives clients an overview of the ship’s CO2 accounts, takes a range of steps to reduce fuel consumption and then compensates for remaining emissions by supporting projects that qualify for UN Certified Emissions Reductions. This together with other efficiency measures contributed to a saving of some 18,000 cubic metres of fuel, or 11 % of the company’s total fuel consumption, in 2010.

STATOIL:Looking into the future, we believe that CO2 will gradually become costly elsewhere in the world as well. That is why we calculate in a CO2 price when we decide to go forward with new investments regardless of the current carbon regime at the location of the project. We believe this makes our portfolio more robust when climate policies tighten further down the road.

Canitreallybetruethatthosecompaniesthatarebestatmeasuring,handlingandreportingtheirgreenhousegasemissionsalsoproducethebestfinancialresults?AccordingtoarecentanalysisfromtheCarbonDisclosureProject(CDP)theanswerisyes.IntheNordicselectionthe26companiesintheCarbonDisclosureLeadershipIndexproducedan84percenthigherreturnthantheother260companies.Theanalysisrelatestoasix­yearperiodfromJanuary2005toMay2011.

Theglobalresultsarejustasclear.Herethe52companieswiththebestclimatereportingproducedanearaverageadditionalreturnof

almost40percentcomparedtothe500largestcompanies.ThetimeframeisthesameasintheNordicanalysis.Ifwelookatthelastthreeyears’returns,thereturnisasmuchas60percenthigherforthemostclimateconsciouscompaniesthanfortheothersintheglobalselection.

Theanalysessaynothingaboutcausalityandthereisawiderangeofcontributoryfactors–bothwithregardtothereturnsandtothedegreeofsophisticationinthecompanies’climatereporting.Neverthelessthefindingsareveryinterestingandoughttobeanalysedfurther.

LINk BETWEEN CLIMATE AND FINANCIAL RESULTS

sri-report 2011PAGE15

We exercise ourvoting rightsThe general meeting is an important arena for dialogue between corporate management and shareholders. As owner in many listed companies, KLP and KLP’s mutual funds use their voting rights actively - both in Norway and abroad.

KLPandKLP’smutualfundshaveestablishedtheirownguidelinesforvotingatgeneralmeetings.Theseguidelinesarepublishedonthehomepage,andarebasedontheNorwegian Code of Practice for Corporate Governance.

ThevotingdecisionsinNorwegiancompaniesarediscussedinternally,meetingformeeting.Foroursharesabroad,wevotebyproxythroughourserviceproviderInstitutionalShareholderServices(ISS).Theinternationalvotingisbaseduponinternationalbestpracticeforcorporategovernance.Thisway,weensurethatwevoteconsistentlyandinconsensuswithotherinternationalinvestors.

Outvotingactivityshallprotectourinterestsasowners–notonlywithregardstotraditionalcorporategovernanceandfinancialissues,butalsowithregardstocompanies’environmentalandsocialimpacts.Wevoteinfavourofresolutionsthatareconsideredtoenhancealong­term,sustainablevaluecreationforshareholdersandotherstakeholders.

Asoftoday,KLPvotesinthefollowing21markets:Australia,Canada,Denmark,Finland,France,Germany,HongKong,Ireland,Italy,Japan,Luxembourg,theNetherlands,NewZealand,Norway,Portugal,Singapore,Spain,Switzerland,Sweden,theUKandtheUSA.

1.ImplementationoftheCodeofPracticeforCorporateGovernance

2. Business3. Equityanddividends4. Equaltreatmentofshareholdersand

transactionswithcloseassociates5. Freelynegotiableshares6. Generalmeetings7. Nominationcommittee

8. Corporateassemblyandboardofdirectors:compositionandindependence

9. Theworkoftheboardofdirectors10. Riskmanagementandinternalcontrol11. Remunerationoftheboardofdirectors12. Remunerationoftheexecutivemanagement13. Informationandcommunications14. Take­overs15. Auditor

Responsible investments from a low- cost leader.

ThE NORWEGIAN CODE OF PRACTICE FOR CORPORATE GOvERNANCE

AdherencetotheCodeofPracticeisbasedonthe“complyorexplain”principlewherebycompaniesmusteitherexplainhowtheycomplywitheachoftherecommendationsorexplainwhytheyhavechosenanalternativeapproach.TheCodeofPracticeindetailisavailableonwww.nues.no.Thecodeaddressesthefollowingissues:

16 sri-report 2011PAGE17

As of May 30, 2011 2010 2009 2008Numberofgeneralmeetings 110 127 123 29Numberofitems 1232 1027 1004 274PercentofitemsKLPandKLP’smutualfunds 12% 10% 13% 1%votedagainstmanagementPercentofitemsKLPandKLP’smutualfunds 1% 0,5% 2% –%abstained

themes no. of items as of Against the board no. of items Against the board september 30, 2011 or abstain 2010 or abstainRoutine/business 535 1% 544 1%Directorrelated 383 11% 216 8%Capitalization 159 18% 137 22%Non­salarycompensation 131 54% 104 51%Anti­takeoverrelated 9 33% – –Mergersandreorganizations 8 0% 19 22%Shareholderresolution 7 86% 7 29%total 1 232 13 % 1 027 11 %

Resolutions

As of september 30, 2011 2010 2009 2008Numberofgeneralmeetings 1448 1533 1803 1792Numberofitems 18921 17164 19851 19748PercentofitemsKLPandKLP’smutualfundsvoted 9% 9% 10% 9%againstmanagement

themes no. of items as of Against the board no. of items Against the board september 30, 2011 or abstain 2010 or abstainRoutine/business 3003 4% 2802 4%Directorsrelated 11513 7% 10826 8%Capitalization 1230 15% 1186 14%Non­salarycompensation 2140 13% 1154 21%Anti­takeoverrelated 246 22% 235 20%Mergersandre­organizations 219 5% 276 5%total 18 351 7 % 16 504 9 %

themes no. of items as of Against the board no. of items Against the board september 30, 2011 or abstain 2010 or abstainDirectorsrelated 237 58% 228 58%Compensation 64 84% 137 85%Routine/business 57 46% 87 60%Corporategovernance 42 64% 46 70%Healthandenvironment 79 71% 81 77%Generaleconomicissues 2 0% 1 100%Humanrights 11 91% 16 100%Anti­socialproposals 6 0% 10 30%Other 72 81% 54 89%total 570 65 % 660 70 %

Management resolutions

Shareholder resolutions

voting internationally

Check which general meetings KLP and the KLP mutual funds have voted at on our web-site www.klp.no. Here you can also read our argument for voting against a resolution.

voting in Norway

8 %Non voted

92 %Voted

KLP and KLP’s mutual funds have voted at approximately 92 percent of the norwegian general meetings they have had voting rights at january 1 – september 30, 2011.

18 sri-report 2011PAGE19

IncidentResearch

and analysis

dialogue and

engagementsatisfactory

results?

Exclusion

no exclusionyES

NO

Company dialogue 1.1.–15.11.2011

CoMPAny stAtus toPICAdecco Dialogue LabourrightsAlstom Excluded HumanrightsAnadarko Observation EnvironmentandHSEBP Observation EnvironmentandHSEDNOInternational ObservationuntilMay2011 BusinessethicsEutelsat Observation HumanrightsStatoil Dialogue EnvironmentandHSEToyota Excluded LabourrightsVedanta Excluded EnvironmentVeidekke Dialogue BusinessethicsYahoo Excluded Humanrights

ObservationCompanies under observation are companies that KLP seeks to influence through dialogue. Divestment can be a last resort if we are not confident in the progress.

Dialogue, observation and exclusionKLP engages in dialogue both with excluded companies and companies that are under observation. The goal in both cases is improvement in policies and practices.

KLP’sexperienceisthatthesynergybetweendialogueandexclusionisaneffectivewayofinfluencingcompanies.Exclusionwillalwaysbealastresort,butaddscredibilitytoourengagementactivities.Thedialoguewillcontinuealsoafterwehavedivestedfromacompany,withthegoaltore­investinthecompanyinthefuture.

KLPalsohascompaniesunderobservation.Wehopetoinfluencethesecompaniesinordertoavoidexclusionsandtopreventsimilarsituationsinthefuture.

Inallengagementprocesses,withexcludedcompaniesandwithcompaniesunderobservation,wehavefourcriteriaforimprovement(seepage20).

Sources and analysesThealmost2000companiesinKLP’sinvest­mentuniversearecontinuouslymonitored.KLPprimarilyutilizestheGESInvestmentServices’analysisasthefoundationforourengagementandexclusions.Inaddition,wealsofollowdecisionsoftheNorwegianGovernmentPensionFund–Global(NGPF).

GESscreens9000newssources.Ifacompanyisassociatedwithunacceptablebusinessconduct,theincidentisinvestigatedandthecompanyiscontacted.Ifthecompanydoesnotshowsufficientwillingnesstoimprovetheirpractices,KLPwilldivest.Allaccusationsrequireanofficialsource,forinstancetheUNoragovernment,ormustbeconfirmedbythecompanyinvolved.

British Petroleum and Anadarko PetroleumThewellblow­outattheBPoperatedoilprospectintheGulfofMexicoresultedinthelossofelevenlivesandthedischargeoflargequantitiesofoilintothesea.Thespillcontinuedfor87daysbeforetheflowwasstopped.BPandAnadarkoPetroleumarejointventurepartners.ThereareseveralongoingUSFederalinvestigations:KLPfollowsthedevelopmentsandthecompanies’measurestoreducetheriskforsimilaraccidentsinthefuture.

Eutelsat CommunicationsInJune2008EutelsatdiscontinuedthebroadcastofNTDTV,aregimeindependentChineseTVchanneltoChina.CriticsclaimthatthereisevidencethattherealreasonistogratifytheChineseregimeinordertoentertheChinesemarket.TheEuropeanParliamenthasurgedthecompanytoresumethetransmission.

Exxon MobilThecompanyhasbeenunderobservationsinceMay2009.KLPhasestablishedadialogueandmetwiththecompanyin2009.KLPwillcontinuethedialogue.ThereasonforobservationistheWesternGreywhale,listedasacriticallyendangeredspecies,whichhasitsfeedinggroundoutsideSakhalinIslandwhereExxonisoperatingoilandgasprojects.

Songa OffshoreSongaOffshoreestablishedanewincentiveprogramin2009.TheprogramisinKLP’sopinioninbreachoftheAGM’sdecision.Inaddition,itisnotinlinewiththeNorwegianCodeofPracticeforCorporateGovernanceandKLP’sandtheKLPMutualFunds’ownvotingpolicy.KLPhavemetwiththecompanyandisfollowingupontheissueinordertoavoidsimilarsituationsinthefuture.ThecompanyhasactedresponsiveandKLPwillobservethecompanyuntilanewincentiveprogramisinplace.

our goal is always to influence companiestowards responsible and sustainable value creation.

20 sri-report 2011PAGE21

1 The violation has ceased.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 company’s action points (point 1–3) are verifiable.

4 requirements

human rightsn AES USA PowerProducersandEnergyTradersn AFIGroup Israel RealEstateOperatingCompaniesn Alstom France ElectricalEquipmentn DanyaCebus Israel Construction&Engineeringn DongfengMotorGroup Hongkong AutomobileManufacturern ElbitSystems Israel AerospaceandDefencen FMCCorp USA DiversifiedChemicalsn IncitecPivot Australia FertilizersandAgriculturalChemicalsn L­3Communications USA AerospaceandDefencenPotashCorpSaskatchewan Canada FertilizersandAgriculturalChemicalsnSterliteIndustries* India MetalsandMiningn VedantaResources* UK MetalsandMiningn Wesfarmers Australia HypermarketsandSuperCentersn Yahoo! USA Internet(SoftwareandServices)

Labour rightsn Bridgestone Japan TiresandRubbern ToyotaMotor Japan AutomobileManufacturern Wal­MartStores USA HypermarketsandSuperCenters

Environmentn BarrickGold Canada MetalsandMiningn Chevron USA OilandGasn DukeEnergy USA ElectricUtilitiesn FreeportMcMoRan USA Materialsn LinguiDevelopmentsBerhad Malaysia PaperandForestProductsn MadrasAluminiumCompany India MetalsandMiningn NorilskNickel Russia MetalsandMiningn RioTinto UK,Australia MetalsandMiningnSamlingGlobal Malaysia ForestProductsnSterliteIndustries* India MetalsandMiningn VedantaResources* UK MetalsandMining

Corruptionn Noexcludedcompany

Weapons productionn AlliantTechsystems USA AerospaceandDefencen Babcock&WilcoxCompany USA AerospaceandDefencen BAESystems UK AerospaceandDefencen Boeing USA AerospaceandDefencen EADS Netherlands AerospaceandDefencen Finmeccanica Italy AerospaceandDefencen GenCorp USA AerospaceandDefencen GeneralDynamics USA AerospaceandDefencen HanwhaCorporation SouthKorea CommodityChemicalsn Honeywell USA AerospaceandDefencenJacobsEngineeringGroup USA ConstructionandEngineeringn LockheedMartin USA AerospaceandDefencen NorthropGrumman USA AerospaceandDefencen PoongsanCorporation SouthKorea MetalsandMiningn PoongsanHoldingsCorporation SouthKorea MetalsandMiningn Raytheon USA AerospaceandDefencen Safran France AerospaceandDefencen SercoGroup UK EnvironmentalandFacilitiesServicesn SingaporeTechnologiesEngineering Singapore AerospaceandDefencen Textron USA IndustrialConglomerate

Tobacco productionn AdrisGrupaPref Croatia Tobaccon AllianceOneInternational USA Tobaccon AltriaGroup USA Tobaccon BritishAmericanTobacco UK Tobaccon GudangGaram Indonesia Tobaccon ImperialTobacco UK Tobaccon ITCLtd India Tobaccon JapanTobacco Japan Tobaccon KT&GCorp SouthKorea Tobaccon Lorillard USA Tobaccon PhilipMorris USA Tobaccon ReynoldsAmerican USA Tobaccon ShanghaiIndustrialHoldings HongKong IndustrialConglomeratesn SouzaCruzSA Brazil Tobaccon SwedishMatch Sweden Tobaccon UniversalCorpVA USA Tobaccon VectorGroup USA Tobacco*Thecompanyisexcludedforseveralreasons.

Excluded companies

China Mengniu Dairy back after milk scandal

Thecontaminationledtothedeathofsixinfantsandapproximately294,000casesofillnesswithsymptomssuchaskidneystonesandkidneyfailure.Thecontaminationoccurredatmilk­collectionstations.Themilkhadbeenwatereddowntoincreasethequantityandinordertoseeminglyincreasetheproteinlevel,melaminhadbeenadded.

InordertoreinstateChinaMengniuintoourportfolios,thefollowingfourcriteriahavehadtobefulfilled:

1. the violation has ceased:In2009,thecompanybeganconsiderableworktoremedythesituation.Thecompanyhasimplementedamonitoringsystemfortestingmelamineandotherpotentialhazardoussubstancestosecureproductquality.

2. the company has adopted a responsible course of action:Thecompanyhasdemonstratedthatitisreviewingitsmonitoringsystemforproductcontrolandalsothatthevictimshavereceivedcompensation.

3. the company has taken a proactive and precautionary approach to improve routines and prevent future violations:ChinaMengniuDairyhasimplementedapolicywhichrequirestestingofproductsandscreeningofsupplierstosecureproductquality.

4. the company’s action is verified:GESInvestmentServiceshasreviewedthequalitymanagementsystemandhasverifiedthatChinaMengniuDairyiswelladvancedinimplementingtheirqualitypolicy.

In 2008, Chinese officials announced that infant milk powder produced in the country had been contaminated with the non-aliment ary chemical melamine. At the heart of the scandal were some of the largest dairy companies in China, one of them being China Mengniu Dairy.

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Our goalis to influencecompaniestowardsresponsibleand sustainablevalue creation.

Four requirements

for reinstatement

1 The reported incident has

ceased.2 The company has adopted

a responsible course of

action.3 The company has taken

a proactive and pre-

cautionary approach to

improve routines and

prevent future violations.

4 The company’s action points

(point 1–3) are verifiable.

24 sri-report 2011PAGE25

Human rightsThe 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, 14 companies associated with human rights violations have been excluded from our investment universe.

ALSTOMExcluded since: December2007source: GESCountry:FranceIndustry: ElectricalEquipmentIndex:MSCI­WI

Alstomisassociatedwithcomplicityinhumanrightsviolationsinahydro­electricprojectinSudan.InAugust2007,aUNSpecialRapporteurfromtheHumanRightsCouncilcalleduponcompaniesinvolvedintheMeroweDamprojecttohalttheoperationsduetoconcernsoverhumanrightsviolationsinconnectionwithlargeresettlementsinvolving50,000people.AmongthecompaniesisAlstom,whichisthemainsupplierofelectricalequipmenttotheproject.NoneofthecompanieshasfollowedtherecommendationfromtheUNSpecialRapporteur.

AESoperatesthehydroelectricdamChan75inPanama,whichaccordingtoseveralUNSpecialRapporteurshasbeenassociatedwithviolationsofthehumanrightsoftheindigenousNgöbepeople.Duringthesummerof2008,urgentappealsweresenttotheStateofPanamafromtheUN,expressingconcernoverthearbitrarydisplacements,lossofhousing,destructionofagriculturalcropsandtheexcessiveuseofforceanddetainingofmembersofthecommunitythatopposedtoproject.TheconstructionofthedamcanresultinthefloodingoftheindigenousCharcolaPavacommunity,butthecommunityhasnotbeenconsulted.

AESExcluded since: December2008source: GESCountry: USAIndustry: PowerProducerIndex: MSCI­WI

DONGFENG MOTOR GROUPExcluded since: June2009source: NGPFCountry:HongKongIndustry: AutomobilemanufacturerIndex: MSCIEmergingMarkets

DongfengMotorGroupsellsmilitaryequipmenttothegovernmentofBurma.ThecurrentsanctionsofboththeEUandtheUStowardsBurmamakesale,supply,transferorexportofarmesandrelatedmaterieltoBurmaillegal.Theexclusionofthecompanyfromourinvestmentuniverse,isaconsequenceoftheethicalguidelinesoftheNorwegianGovernmentPensionFund­Global,sayingthatinvestmentsincompaniessellingarmsormilitaryequipmenttostateswhichareonthelistofcountrieswhosegovernmentbondsarenotinvestable,aretobeavoidedforthefund.

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AFI GROUP Excluded since: December2010source:NGFP,GESCountry:IsraelIndustry:RealEstateOperatingCompaniesIndex:NotincludedinKLP’sbenchmarkindex

AfricaIsraelInvestmentsisinvolvedintheconstructionofIsraelisettlementsintheOccupiedPalestinianTerritory.Inspring2009,thecompany’ssubsidiaryDanyaCebuscompletedhousingconstructionprojectsinthreesettlements.Accordingtointernationallaw,specificallytheFourthGenevaConvention,theIsraelisettlementsareillegal.

DANyA CEBUS Excluded since: December2010source:NGPF,GESCountry:IsraelIndustry:Construction&EngineeringIndex:NotincludedinKLP’sbenchmarkindex

DanyaCebusisinvolvedintheconstructionofIsraelisettlementsintheOccupiedPalestinianTerritory.Inspring2009,thecompanycompletedhousingconstructionprojectsinthreesettlements.Accordingtointernationallaw,specificallytheFourthGenevaConvention,theIsraelisettlementsareillegal.

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INCITEC PIvOTExcluded since: June2009source: GESCountry:AustraliaIndustry: FertilizersandAgriculturalChemicalsIndex:MSCI­WI

FMC CORPORATIONExcluded since:June2010source: GESCountry:USAIndustry: ChemicalsIndex:MSCI­WI

ThecompanyisimportingphosphaterockfromWesterSahara.TheregionisoccupiedbyMoroccoandtheInternationalCourtofJustehasruledthatMoroccohasnolegalclaimstoWesternSahara,andconsequentlyMoroccoisnotentitledtoexploititsnaturalresources.Theexploitationofthenaturalresourcesofcolonisedterritories,WesternSaharainparticular,hasalsobeendeclaredillegalinanopinionissuedbytheUNUnder­SecretaryGeneralforLegalAffairs.

FMCCorporationhasconfirmedtoGESthatitssubsidiaryFMCForetisimportingphosphatefromWesternSahara.ThecompanyisthusindirectlyfundingMorocco’sillegaloccupationoftheterritory.Inanopinion,issuedin2002,bytheUNUnder­SecretaryGeneralforLegalAffairs,theexploitationofnaturalresourcesincolonizedterritories,WesternSaharainparticular,wasdeclaredillegalifitisnottothebenefitofthepeopleoftheterritory.

ELBIT SySTEMSExcluded since: December2009source: GES,SPUCountry:IsraelIndustry:AerospaceanddefenseIndex: MSCI­WI

ElbitsuppliesasurveillancesystemthatispartoftheseparationbarrierbeingbuiltbytheIsraeligovernmentintheWestBank.Theconstructionofpartsofthebarrierisconsideredtoconstituteviolationsofinternationallaw,andElbit,throughitssupplycontract,isthushelpingtosustaintheseviolations.

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L-3 COMMUNICATIONSExcluded since: December2005source:GESCountry:USAIndustry: AerospaceandDefenceIndex:MSCI­WI

TheUSarmy’sinvestigationabouttheconditionsintheAbuGhraibprisondescribesseveralinstancesandpracticesofhumanrightsabuseswherenotonlysoldiersbutalsoTitanemployeesallegedlywereinvolvedorpresent.In2003­2004,theUSarmyheldhundredsofprisonersinvariousprisonsinIraq.TitanhasbeenacquiredbyL­3Communications,whoiscontinuingtosupplylinguistandtranslatorservicestotheUSarmyandthereforeshouldadoptahumanrightspolicyaddressingoperationsinsensitivecountriessuchasIraqandAfghanistan.

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vEDANTA RESOURCESExcluded since: December2008source: GES,NGPFCountry: UKIndustry: MetalsandMiningIndex: MSCI­WI

VedantaResourcesisintheprocessofestablishinganaluminiumproductioncomplexconsistingofabauxitemineandaluminarefineryinOrissainIndia.Inestablishingitsoperationthecompanyhasreportedlycontributedtohumanrightsabuses,includingforcedrelocations,andviolenceandintimidationagainstlocalresidents.Forinstance,theproposedhilltopmineisoneofthelocaltribe’smostsacredsites.Furthermorethecompanyhasinthisprocess,accordingtothelocalauthorities,breachedIndianenvironmentallaws,misleadauthorities,andcausedenvironmentaldegradation.Otheraccusationsincludeillegalproductionexpansions,irresponsiblehandlingofhazardouswaste,violationsagainsttribalpeoples,deplorablewages,anddangerousworkingconditionsintheminesandfactories.

WESFARMERSExcluded since: December2007source: GESCountry:AustraliaIndustry:HypermarketsandSuperCentresIndex:MSCI­WI

WesfarmersisassociatedwithimportofphosphatrockfromWesternSahara,thusindirectlyfundingMorocco’sillegaloccupationofthecountry.Thepracticeofimportingphosphaterockfromtheconcernedterritoryhasbeenconfirmedbythecompany.In1975,theInternationalCourtofJusticeruledthatMoroccohasnolegalclaimstoWesternSaharaandconsequentlynottoitsnaturalresources.In2002,theexploitationofthenaturalresourcesofcolonisedterritories–WesternSaharainparticular–wasdeclaredillegalinanopinionissuedbytheUNUnder­SecretaryGeneralforLegalAffairs.

POTASh CORP SASkATChEWANExcluded since:June2010source:GESCountry:CanadaIndustry:Fertilizers&AgriculturalChemicalsIndex:MSCI­WI

PotashCorpSaskatchewanhasconfirmedthatawhollyownedsubsidiaryisimportingphosphatefromWesternSahara.ThecompanyisthusindirectlyfundingMorocco’sillegaloccupationoftheterritory.Inanopinion,issuedin2002,bytheUNUnder­SecretaryGeneralforLegalAffairs,theexploitationofnaturalresourcesincolonizedterritories,WesternSaharainparticular,wasdeclaredillegalifitisnottothebenefitofthepeopleoftheterritory.

yAhOO!Excluded since: December2005source: GESCountry:USAIndustry: Internet(softwareandservices)Index:MSCI­WI

YahoostandscriticisedforhavingpassedonInternetuserinformationofaChinesejournalisttoChina’sstatesecurityleadingtoaten­yearimprisonmentforthejournalist.ThetransferofinformationisconfirmedbyChinesecourtdocumentsandcompanystatements.Thecompanyhasduring2008launchedaBusinessandHumanRightsProgramtoraisetheawarenessontheissuewithinthecompany.IthasalsotogetherwithotherinformationtechnologycompaniesintheGlobalNetworkInitiativelaunchedasetofprinciplesthataimtoprotectfreedomofspeechandprivacyintheinformationandcommunicationtechnologiesindustry.

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STERLITE INDUSTRIESExcluded since: June2010source: GES,NGPFCountry: IndiaIndustry: MetalsandMiningIndex:MSCIEmergingMarkets

SterliteIndustriesisasignificantjointventure­partnerintheVedantaResourcescontrolledaluminiumproductioncomplexcurrentlybeingestablishedinOrissainIndia.SeereasonforexclusionforVedanta.

28 sri-report 2011PAGE29

Labour rightsEvery 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. Three companies have been excluded from our investment universe associated with labour rights violations.

TheUNMissioninLiberiahaspublishedareportonhumanrightsconditionsatrubberplantations,includingaplantationownedbyFirestone,aBridgestonesubsidiary.Thereportportrayschildlabourasaseriousproblem,supportingtheallegationsforwardedinalawsuitagainstthecompanyfiledbytheInternationalLaborRightsFund(ILRF),whichisstillongoing.Thecompanyclaimsithasbannedchildrenfromtappingtrees,butworkerssaythebanisnotenforced.Allegedly,childrenbegintoworkattheageofnineorteninordertohelptheirparentsmeetthequotassetbythecompany.Theplantationisthelargestplantationintheworld,andthelargestemployerinLiberia.Animportantstepforwardisthecollectivebargainingagreementthatwassignedattheplantationinsummer2008andupdatedin2010.

BRIDGESTONEExcluded since: December2006source: GESCountry: JapanIndustry: TiresandRubberIndex: MSCI­WI

TheToyotaMotorPhilippinesCompanyWorkersAssociationunionallegesthatthemanagementofToyotaMotorPhilippineshasimpededtherighttoorganiseandcollectivebargainingandrecurredtoillegaldismissalsofworkers.TheInternationalLabourOrganization’s(ILO)CommitteeofFreedomofAssociationlistsanumberofactionstakenbythecompanytochallengethecertificationofaunionandtointimidateemployeesintheirpreferenceofunion.

TOyOTA MOTORExcluded since: December2005source: GESCountry: JapanIndustry:AutomobileManufacturerIndex: MSCI­WI

WAL-MART STORESExcluded since: June2003source: GES,NGPFCountry: USAIndustry:HypermarketsandSupercentersIndex: MSCI­WI

AsteadystreamofmediareportsandlawsuitstestifyofWal­Mart’snotoriouslybadlabourpractices.Thecompanyiscriticisedforregulatoryandlegalnon­complianceinseveralareasrelatedtolabourrights.Specificincidentsconcernchildlabour,sweatshopconditionsatfactories,discriminationofwomenandanti­unionbehaviour.In2008,Massachusetts’high­estcourtruledinfavourforsome67,500currentandformeremployeesofWal­Martwhoclaimedthecompanysystematicallywithheldtheirwages.Theattorneyonthecasehasmorethan30othersimilarcasespendingagainstWal­MartinotherstatesThecompanyisaccusedofsystematicdiscriminationofwomeninaclassactionsoughtby1.6millionemployeesandformeremployees.

FREEPORT MCMORANExcluded since: July2006source: GES,NGPFCountry: USAIndustry: MetalsandMiningIndex:MSCI­WI

FreeportMcMoRanhasreceivedheavycriticismforpollutingthesurroundingsofitsGrasbergmineinIndonesia,theworld’slargestgoldmineandsecondlargestcoppermine.Itisoneoftheworld’smostcriticizedminingventures.Themainconcernsrelatetoacidrockdrainageandriverinetailingsdisposal.Thecompanydisposes230,000tonnesperdayofheavymetalcontainingminetailingsintolocalrivers,apracticethathasbeenwidelyoutlawed.Thegovernmenthasaccusedthecompanyofnegligenceandorderedittotakemeasurestominimisetheeffectontheenvironment.

EnvironmentThe environment is our common resource, and subsequently, our common responsibility. By excluding com panies causing environmental degradation, KLP acts responsibly and wishes to signalize the importance of sound environment management. As a consequence, eleven companies have been excluded from our investment universe.

ChEvRONExcluded since: June2004source:GESCountry:USAIndustry: OilandGasIndex:MSCI­WI

In2004,atrialwasinitiatedagainstChevroninEcuador.Thecompanystandsaccusedofsystematicallydumpingbillionsofgallonsofhighlytoxic,carcinogenicwasteintopitsdugintotheearth.ThishappenedintheAmazonasjunglewhereChevronoperatedfromthe1960stothe1990s.Thetrialisongoing,andbothpartiesaredoingscientificstudiesofthearea.Chevroncontestsseveralofthestudiesmade,sayingthattheyarescientificallyunreliable.However,inautumn2008,anindependentexpertfoundthat42outof46toxicwastepitsinspectedcontainhighlevelsoftoxins,andthatmostofthemwereexcludedfromtheremediationprogramthatChevronhasagreeduponwiththegovernmentofEcuador.

DUkE ENERGyExcluded since: December2006source: GESCountry: USAIndustry: ElectricUtilitiesIndex: MSCI­WI

DukeEnergyhaschosennottoinstallpollutioncontrolequipmentatseveralofitsplants.Thisincombinationwiththeageoftheplantsandtheirlargequantityofemissionsindicatethatthecompanydoesnotmanageitsmostcentralenvironmentalrisksinanadequateway.Theimpactsofitsoperationsaresignificantontheenvironmentandpublichealth.In2006,theUSSupremeCourtgrantedpermissionfortheEnvironmentalProtectionAgencytoproceedwithalawsuitagainstDukeEnergyundertheCleanAirAct.

BARRICk GOLDExcluded since: February2009source: GES,NGPFCountry: CanadaIndustry: MetalsandMiningIndex: MSCI­WI

BarrickGold,theworld’slargesgoldproducer,causesextensiveenvironmentaldegradationbyitsoperationsinthePorgeragoldmineinPapuaNewGuinea.Thecompanymakesuseofanaturalriversystemtotransportanddisposeofminewaste,whichhasanegativeimpactonthepopulation’slifeandhealth,includingboththeresidentsoftheactualminingareaandpeoplewholivealongtheriverdownstreamofthemine.Thebiggestthreatistheheavymetalscontamination,especiallyfrommercury,producedbythetailings.Theenvironmentaldamagethatriverinedisposalmaycausearewellknown,butthecompanyhasnotimplementedanyappreciablemeasurestopreventorreducethisdamage.

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VedantaResourcesisestablishinganaluminiumproductioncomplexintheIndianstateofOrissa.Inthisprocessthecompanyhas,accordingtolocalauthorities,breachedIndianenvironmentallaws,misleadauthoritiesandcausedenvironmentalharm.Theseincludethedischargeoftoxicalkalineandheavymetalladenwaterintoriversandgroundwater.SeveralsquarekilometresofforestinoneofIndia’smostbiodiverseregionswillbecleared.Otheraccusationsincludeillegalproductionexpansions,irresponsiblehandlingofhazardouswasteanddangerousworkingconditions.

RioTintoGroupisajointventurepartnerwithFreeportMcMoRanintheGrasbergmineinIndonesia,theworld’slargestgoldmineandsecondlargestcoppermine.Theminedischargeslargeamountsoftailingsdirectlyintoariver;approximately230,000tonnesormoreperday.Thedischargeswillbeincreasinginfutureinlinewithexpansionofthemine.Thereisahighriskthatacidrockdrainagefromthewasterockandtailingsdumpswillcauselastinggroundandwatercontamination.Themineisdeemedtoremainprofitableuntil2041,whichisexpectedtoresultinseverelong­termenvironmentaldegradation.Therearenoindicationsthatthesepracticeswillbechanged.

Formanyyears,NorilskNickel’sPolarDivisionhasemittedlargeamountsofsulphurdioxide,nickelandheavymetals.Emissionshavecauseddeathorsignificantdamagetovegetationupto200kilometersfromtheoperations.Atmosphericemissionshavealsocausedthelocalpopulationsignificanthealthproblems.RespiratorydiseasesandvariousformsofcanceraremoreprevalentherethaninotherregionsinRussia.Eventhoughthecompanyhasimplementedmeasuresinrecentyearstoreducemetalemissions,currentemissionlevelsremainhigh.Additionally,SO2emissionlevelsarenearlyunchanged.IntheCouncil’sopinion,itseemsthatthecompanyfailstocomplywithnationalenvironmentalregulationsand,moreover,doesnotseemtoplantocleanuptheaffectedareas.

NORILSk NICkELExcluded since: December2009source: NGPFCountry:RussiaIndustry: MetalsandMiningIndex:MSCIEmergingMarket

RIO TINTOExcluded since: December2008source:GES,NGPFCountry:UK,AustraliaIndustry: MetalsandMiningIndex: MSCI­WI

vEDANTA RESOURCESExcluded since: December2007source: GES,NGPFCountry: UKIndustry: MetalsandMiningIndex: MSCI­WI

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STERLITE INDUSTRIESExcluded since: June2010source: GES,NGPFCountry: IndiaIndustry: MetalsandMiningIndex:NotincludedinKLP’sbenchmarkindex

SterliteIndustriesisasignificantjointventure­partnerintheVedantaResourcescontrolledaluminiumproductioncomplexcurrentlybeingestablishedinOrissainIndia.SeereasonforexclusionforVedanta.

SAMLING GLOBALExcluded since: December2010source:NGPFCountry:MalaysiaIndustry: ForestProducts&PapersIndex:NotincludedinKLP’sbenchmarkindex

TheMalayanforestcompanySamlingGlobalhasbeenexcludedfromtheNorwegianGovernmentPensionFundGlobalonthegroundsofillegalloggingandsevereenvironmentaldamage.TheCouncilonEthicshasassessedthecompany’soperationsinSarawak(Malaysia)andGuyana.

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TheexclusionislinkedtotheexclusionofVedanta,Malco’smothercompany.Onthewhole,thesecompaniesgenerateconsiderableamountsofpollutionandhazardouswaste.WithregardtoMalco’sactivities,theCouncilonEthicsoftheNorwegianPensionFundGlobalfindsthatthecompany’shandlingofredmudmaycausesevereenvironmentaldamage.Thereisahighriskthattheunsecuredredmuddumpswillpolluteanimportantdrinkingwatersource,aswellascontaminatingsoilandgroundwater.

MADRAS ALUMINIUM COMPANyExcluded since: December2007source: NGPFCountry:IndiaIndustry: MetalsandMiningIndex:NotincludedinKLP’sbenchmarkindex

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LINGUI DEvELOPMENTS BERhADExcluded since: June2011source: NGPFCountry:MalaysiaIndustry: PaperandForestProductsIndex:NotincludedinKLP’sbenchmarkindex

Theforestcompanyhasbeenexcludedonthegroundsofillegalloggingandsevereenvironmentaldamage.Theinvestigationsdocumentedwhatappearedtobeextensiveandrepeatedbreachesofthelicencerequirements,regulationsandotherdirectivesinconcessionareas.Someoftheviolationswereveryserioustransgressions,suchasloggingoutsidetheconcessionarea,logginginaprotectedareathatwasexcludedfromtheconcessionbytheauthoritiesinordertobeintegratedintoanexistingnationalpark,andre­entryloggingwithoutenvironmentalimpactassessments.

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32 sri-report 2011PAGE33

CorruptionCorruption is one of the major economic challenges hindering economic and sustainable development in many countries. As an inves tor, KLP supports the international battle against corruption by excluding companies that are associated with severe or systematic corrupt ac tivities.

NocompanyassociatedwithcorruptionisexcludedasofDecember1,2011.

ALLIANT TEChSySTEMSExcluded since: December2005source: GES,NGPFCountry:USAIndustry: AerospaceandDefenceIndex: NotincludedinKLP’sbenchmarkindex

AlliantTechsystemshasbeeninvolvedinmanyweaponprojectsasasupplierofspecialcomponentsaswellasmaincontractorforwholeclustermunitions.Thecompanycurrentlyhasnoclustermunitionsproductsinproduction,butwillfollowtheUSpolicyconcerningclustermunitionsandproduceifrequired.AlliantTechsystemsisalsoassociatedtotheprovisionofkeyproductsandservicesfornuclearweapons.ThecompanyisinvolvedinupdatingthepropulsionsystemsfortheUS nucleardeterrentprogramme.

BAE SySTEMSExcluded since: January2006source: NGPFCountry: UKIndustry: AerospaceandDefenceIndex: MSCI­WI

BABCOk & WILCOxCOMPANyExcluded since: December2011source: GESCountry: USAIndustry: AerospaceandDefenceIndex: NotincludedinKLP’sbenchmarkindex

BAESystems,FinmeccanicaandEADShavetogetherformedthejointventureMBDA.Theownershipstructure,accordingtoEADS’homepageis37,5percentBAE,37,5percentEADSand25percentFinmeccanica.ThisisalsoconfirmedonthehomepagesofBAESystemsandFinmeccanica.AccordingtoJane’sAirLaunchedWeapons,MBDAisundercontracttodevelopandproducetheASMP­AmissilefortheFrencharmedforces.ASMP­Aisdescribedasa“nuclearwarheadair­to­surfacemissile”.

Babcock&WilcoxCompanyisassociatedtotheprovisionofkeyproductsandservicesfornuclearweapons.ItoperatestwonuclearweaponplantsonbehalfoftheUSgovernment.

BOEINGExcluded since: January2006source: NGPFCountry:USAIndustry: AerospaceandDefenceIndex: MSCI­WI

Thecompanyis,accordingtoitsownhomepageasupplerofvariousformsofmaintenanceandupgradeservicesfortheMinutemanIIIICBM.ICBM,shortforIntercontinentalBallisticMissiles,isthemainelementoftheUSlandbasedstrategicnuclearweapons.

Weapons productionSome weapons hit harder, and affect more civilians than others. KLP does not want to contribute to manufacture, sale or use of weapons that do not differentiate between civilian and military targets. As a consequence, 20 companies involved in the production or sale of landmines, nuclear or cluster weapons have been excluded.

EADSExcluded since: December2005source:GES,NGPFCountry:NetherlandsIndustry:AerospaceandDefenceIndex:MSCI­WI

EADS(EuropeanAero­NauticsDefenceandSpaceCompany)hasconfirmedthatthecompanyispartofthejointventureTDA.TDAproduces,amongotherthings,theartillerygrenadePRCargo,whichthecompanydescribesasfollows:“Thisisasubmunitionprojectilefor120mmrifledmortars.Equippedwithdualeffect­submunitions,itengagesdismountedtroopsandlightarmoredvehicles.”AccordingtoJane’sInformationGroup’sdatabaseInfantryWeapons,PRCargocontains16bombletseach.Thistypeofweaponisan“area­weapon”andisprimarilyusedagainstpersonnel.

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GENCORPExcluded since: January2008source:GES,NGPFCountry: USAIndustry:AerospaceandDefenceIndex:NotincludedinKLP’sbenchmarkindex

GenCorphasmanufacturedspecialcomponentsforclustermunitionsandstillmarketstheproductsonitswebsite.ThecompanymarketspropulsionsystemsandwarheadsfortheclusterweaponsystemsGMLRS,MLRSandATACMS.AllthreeweaponsystemsfulfilthedefinitionundertheConventiononClusterMunitions.Furthermore,GenCorpisassumedtobeinvolvedintheproductionofnuclearweapons.GenCorp’sfullyownedsubsidiary,Aerojet,producespropulsionsystemsformissilesthathavenofunctionotherthantodelivernuclearwarheads.

GENERAL DyNAMICSExcluded since: December2005source:GES,NGPFCountry:USAIndustry:AerospaceandDefenceIndex: MSCI­WI

GeneralDynamicsisassociatedtotheprovisionofkeyproductsandservicesfornuclearweapons,partoftheUSnucleardeterrentprogramme.GeneralDynamicshasalsomanufacturedseveralclustermunitionsandtheircomponents.Inlate2010,thecompanystatesthatnomarketing,manufactureorstockpilingoftheseweaponsiscarriedoutbythecompanycurrently.However,thecompanyhasnopolicyrelatedtoclustermunitionsandcannotguaranteethatitwouldnotproducetheproductsagain.

hANWhA CORPORATIONExcluded since: January2008source: GES,NGPFCountry: SouthKoreaIndustry:CommodityChemicalsIndex:MSCIEmergingMarkets

Thecompanyproducesvariousformsofmilitaryequipment,amongthesedifferenttypesofmunitions.Thecompanyhaveconfirmedtheproduction,andclustermunitionsaremarketedonthecompany’swebsite.

hONEyWELLINTERNATIONALExcluded since: January2006source: NGPFCountry:USAIndustry:AerospaceandDefenceIndex: MSCI­WI

Thecompanyis,throughitssubsidiaryHoneywellTechnologySolutionsInc,responsibleforrepair,development,calibration,operationsandmaintenanceofinstrumentationandrecordingofdatafromsimulatednucleardetonationsatWhiteSandsMissileRangeinNewMexico.

JACOBS ENGINEERING GROUPExcluded since:June2010source:GESCountry: USAIndustry:ConstructionandEngineeringIndex:MSCI­WI

JacobsEngineeringGroupisassociatedtotheprovisionofkeyproductsandservicesfornuclearweapons.Thecompany’sjoint­venture,AtomicWeaponsEstablishment(AWE),isinvolvedinmanufacturingandmaintainingwarheadsfortheTridentIImissilesystem,whichisapartoftheUKnucleardeterrentprogramme.

LOCkhEED MARTINExcluded since: December2005source: GES,NGPFCountry:USAIndustry: AerospaceandDefenceIndex: MSCI­WI

Thecompanyisassociatedtotheprovisionofkeyproductsandservicesfornuclearweapons.Thejoint­ventureAtomicWeaponsEstablishment(AWE)isinvolvedinmanufacturingandmaintainingnuclearwarheadsfortheTridentIImissilesystem,whichisapartoftheUKnuclearprogramme.

NORThROP GRUMMANExcluded since: January2006source: NGPFCountry:USAIndustry: AerospaceandDefenceIndex:MSCI­WI

Thecompanyis,accordingtoitsownpressrelease,contractorformaintenanceandupgradingoftheUSAirForce’sMinutemanIIIICBM.ICBM,shortforIntercontinentalBallisticMissiles,isthemainelementoftheUSlandbasedstrategicnuclearweapons.

POONGSAN CORPORATIONExcluded since: January2007source:GES,NGPFCountry:South­KoreaIndustry:MetalsandMiningIndex: NotincludedinKLP’sbenchmarkindex

POONGSAN hOLDINGSExcluded since: January2007source:GES,NGPFCountry:South­KoreaIndustry:MetalsandMiningIndex: NotincludedinKLP’sbenchmarkindex

Poongsanproducesvarioustypesofmunitionsformilitaryuse,includingclusterbombes.Onitswebsite,thecompanydescribesthreeoftheseproducts.Oneshellisdescribedascontaining88“bomblets”,i.e.small,explosivesub­munitionsthatcharacterizeclustermunitions.Anotherisdescribedas“usedforblast,fragmentation,miningeffects.”

PoongsanHoldingsowns32percentofthesharesinPoongsan.SeereasonforexclusionofPoongsan.

SERCO GROUPExcluded since: January2008source: NGPF,GESCountry: UKIndustry: EnvironmentalandFacilitiesServicesIndex:MSCI­WI

Accordingtoinformationonthecompany’swebsite,SercoGroupisapartnerinthecompanyAWEManagementlimited(AWEML),whichistheoperatingcompanytotheBritishAtomicWeaponsEstablishment(AWE).AWEisagovernmentownedcompanywhichproducesandmaintainstheUK’snuclearweapons.

RAyThEONExcluded since: December2005source:NGPF,GESCountry:USAIndustry: AerospaceandDefenceIndex: MSCI­WI

Thecompanyproduces,accordingtoitsownweb­site,3JSOW(JointStandOffWeapon),andclustermunitionstothese:“JSOWintegratestheBLU­97combinedeffectsbombletsandtheBLU­108sensor fusedweaponsubmunitionsforareatargetsorarmouredvehicles”.Theseareconsideredasclusterweapons.ThisinformationisconfirmedbyJane’sInformationGroup.

SAFRANExcluded since: January2006source: NGPF,GESCountry: FranceIndustry:AerospaceandDefenceIndex:MSCI­WI

SafranisthemothercompanyofcompaniesSnecmaandSagem.In2005,Jane’sMissilesandRocketswrote“EADSSPACETransportationhassignedacontractwiththeFrencharmamentprocurementagency(DGA)forproductionoftheM51submarine­launchedballisticmissile(SLBM)ThecontractcoversseriesproductionoftheM51weaponsystemforaperiodoftenyears.WorthmorethanEUR3billion,itincludesafixedtrancheandseveralconditionaloptions.EADSSPACETransportationisprimecontractorfortheprogramme,whileSNECMA,SNPE,DCN,ThalesandSagemarethemainsubcontractors.”

FINMECCANICAExcluded since: January2006source: NGPFCountry:ItalyIndustry:AerospaceandDefenceIndex: MSCI­WI

BAESystems,FinmeccanicaandEADShavetogetherformedthejointventureMBDA.Theownershipstructure,accordingtoEADS’homepageis37,5percentBAE,37,5percentEADSand25percentFinmeccanica.ThisisalsoconfirmedonthehomepagesofBAESystemsandFinmeccanica.AccordingtoJane’sAirLaunchedWeapons,MBDAisundercontracttodevelopandproducetheASMP­AmissilefortheFrencharmedforces.ASMP­Aisdescribedasa“nuclearwarheadair­to­surfacemissile”.

36 sri-report 2011PAGE37

I2003

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IIDec.’02

1.1.11 –30.9.11

KLPWorldisacustomisedbenchmarkindexwherecompanieswhichhavebeenexcludedareremovedfromtheindex.Thisindexisrebalancedsothatthattheindustrialgroup’sweightingcorrespondswithMSCIWorld.Thismethodofindustrialgroupneutralisationisutilisedbecausethedifferenceinreturnbe­tweenthetwoindexesisexpectedtobeminor.

Sofarthisyear,KLP’sbenchmarkindexKLPWorldhasalevelofreturnthatis0.49per­centlowerthantheMSCIWorld.In2009,KLPWorldoutperformedwith1percent,andlastyearwith0.19%.NotethatthisisaquantitativeanalysisofthepotentialinfluenceontheKLPWorldIndexonly.When

weexcludeacompany,itisexcludedfromallportfolioswithinallrelevantassetclasses,andtheexcludedsecuritieswillbereplacedwithhigherweightsinotherswithinthesameindustrygroup.Consequently,therealeffectisdifficulttomeasure.Theremightalsobedifferencesbetweentheeffectsondifferentregions.Nevertheless,thelargesteffectonthedeviationwillbetheweightofthesingleexcludedsecurity(indexweight)anditsperformancerelativetoitspeerswithinacertainperiodoftime.

However,itisatooshorttimeperiodtodrawanysolidconclusionsaboutthelong­termfinancialeffects.

Annual relative return deviation, kLP World and MSCI World

As of 2003 2004 2005 2006 2007 2008 2009 2010 sept 30, 2011

­0,31% 0,09% 0,84% ­0,69% ­0,29% ­0,82% 1,00% 0,19% –0,49%

Monthly relative return deviation, kLP World and MSCI WorldThefigureshowsthevariationbetweenaportfolioofglobalstockswithnegativescreeningandaglobalportfoliowithoutexclusions(December2002–September2011).

0,60,40,20,0

-0,2-0,4-0,6

%

TExTRONExcluded since: December2008source: GES,NGPFCountry: USAIndustry:IndustrialConglomerateIndex:MSCI­WI

Textrondevelopsandmarketsclustermunitionsandtheirsubmunitions,whichareprohibitedaccordingtotheConventiononClusterMunitions.Thecompanyconfirmsthatitstillofferse.g.theclustermunitionsCBU­105andithasdevelopedandismanufacturingthesubmunitionBLU­108,whichisnotincompliancewiththeconvention.Thecompanysaysthataredesignoftheweaponinordertobecompliantwiththeconventionwouldbeonepossiblesolution,butthecompanyisnot“convincedthatthiswouldbethebestsolutionforeliminatingtheunacceptablerisktocivilians”.

SINGAPORETEChNO LOGIESENGINEERINGExcluded since: December2001source: GES,NGPFCountry: SingaporeIndustry:AerospaceandDefenceIndex: MSCI­WI

TheMinistryofForeignAffairsinThailandacknowledgetotheInternationalCampaigntoBanLandmines(ICBL)thatafully­ownedsubsidiaryofSingaporeTechnologiesEngineeringcontinuestoproduceanti­personnelmines.Thecompanyconfirmsthatminesarestillbeingproduced,howevernotforexportsbut“onlyforthedefenceofSingaporeandonlywhenweareaskedto”.

Index performance of ethical investmentsWe balance our portfolios in order to minimize the effect of the exclusions. At the same time, KLP is working systematically to influence the excluded companies in order to reinstate them into our investment portfolios.

Publishedby:KLPPhotographs:MortenBrunDecember2011

DronningEufemiasgate10P.O.Box400SentrumNO­0103OsloTelephone+4722033500Fax+4722033600www.klp.no