thematic_sheets.climate_change

Summary be t t e r m a n a g e m e n t O F NAT U RAL RE SOU RCE S 1

Pollution control

4

Water management

7

Land management

Adaptation of the co nsequences of cl imate change 10 Adaptation of infrastructure 13 Insurance and management of climate change risk 16 Changing consumer behavior

Reduction OF GREENHOUSE GAS EMISSIONS 19 Energy efficiency of transportation 22 Building energy efficiency 25 Energy substitution 28 Modernization of electrical installations

b e t t e r management OF NATURAL RESOU R CES

Pollution control The challenges Reducing, reutilizing and recycling waste to control pollution Municipal waste generated in the European Union in 2007, in kg per person Finland

250 to 400 kg United Kingdom

651 to 825 kg

Sweeden

Lithuania

Netherlands

Germany

Belgium

Estonia Latvia

Denmark

Average EU 27 : 522 kg

Luxembourg Austria

France

• 849 million tonnes(2) of waste per year is generated by agricultural activities, construction and public works, businesses and households in France.

Czech Republic Slovakia Hungary

• €300 billion(3) was spent on waste treatment around the world in 2008.

Slovenia Bulgaria Portugal

Spain Greece Malta

n Constantly increasing waste production and trend towards overpackaging of products

Poland

Romania

Italy

• Constantly increasing global population: which has increased from 1.5 billion inhabitants in 1900 to 6.7 billion today and will continue to grow, and expected to reach 9 billion by 2050(1).

• Consumer lifestyle leading to increasingly intensive consumption and production.

401 to 525 kg 526 to 650 kg

n The constant increase in waste for decades is due to various factors

• In Europe, almost 80% of televisions, computers and mobile phones are not recycled.

The figure is over 85% in the United States and 99% in India. 90% of toxic waste is produced by industrialized countries(4).

• Overpackaged products: packaging represents 50% of household waste by volume and 30% by total weight(5).

Cyprus

n Waste treatment is becoming a key issue in pollution control Source: Eurostat, February 2008

Key facts n 900 kg: the average quantity of waste produced by an American each year, versus 17 kg for an African(7). n 450 years: the time taken for a plastic bag to decompose(8). n1 tonne : the weight of waste produced by the city of Dubai in the time it takes to read this page(9). n 400,000 : the number of people who die each year in China because of air pollution(10), partly due to waste issue

• The increase in waste is leading to water and soil pollution that is affecting crop yields.

• There are two categories of waste treatment: landfill and incineration. These methods are currently posing problems of soil and air pollution as it becomes difficult to find waste storage sites. That is why recycling and reutilization are particularly promoted, to reduce significantly end waste.

• Air pollution - partly due to waste issue - is responsible for 400,000 deaths(6) in China each year.

• Waste that washes up in the oceans has caused the disappearance of some species and threatens biodiversity. There are innovative waste management technologies from which a great deal of progress is expected. n Household waste landfill is partly responsible for global warming • Fermentation of household waste in landfills produces and emits large volumes of methane (CH4). A methane molecule absorbs in average 25 times more radiation than a carbon dioxide molecule over a 100 year period. The Global Warming Potential (GWP) is therefore 25, and is expected to reach 62 in 20 years time. Methane is considered the third most threatening greenhouse gas to climate change after carbon dioxide and freons.

• Measures have been taken to control this problem on a global level, particularly under the Kyoto Protocol. These include outlining a mechanism to promote collaboration between developed and developing countries on the theme of reducing greenhouse gas emissions.

The “Clean Development Mechanism” (CDM) opens the way to external financing of a sustainable waste management policy, from collection through to responsible landfill(11).

Africa benefited from the CDM mainly on waste management issues.

(1) Figures taken from the 2004 Revision of the official demographic estimates and projections of the United Nations, published by the Population Division of the Department of Economic and Social Affairs (DESA); (2; 3; 4; 5) Report of ADEME “Les déchets en France, chiffres clés 2007”; (6; 10) Chinese State Environmental Protection Agency (SEPA), in a report published in 2006;

(7) “Les déchets”, by J-F Noblet, published by Milan Presse, ‘Agir pour ma planète’ collection (2005); (8) « La Revue du Développement Durable », May 2009; (9) Estimates by planetscope.com; (11) International Co-operation Centre in Agronomic Research for Development (CIRAD), 2009

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bett e r m a n a g e m e n t O F NATURA L RESOU RCES

Pollution control INVESTMENT OPPORTUNITIES Waste management generates numerous investment opportunities. The waste treatment market was worth €300 billion worldwide in 2008.

Investment opportunities arise at various stages of the waste cycle, not only during waste treatment. The main operators in the sector are active along the entire value chain, from collection, sorting and treatment through to recycling or incineration. nC ollection: companies positioned in selective waste collection nS orting: companies manufacturing waste sorting equipment (dustbins, incinerators, etc.) and acting on users’ sensibilisation to simplify waste collection. nT reatment : • Companies positioned in eco-efficient waste management.

• Composting activity to produce fertilizer for crops.

• Innovative storage centers which convert waste into electricity. n Recycling : • Recycling activities based on regeneration to restore raw material function to an obsolete material, or reutilizing waste in current state (e.g. glass bottles).

• Companies positioned in recycling of complex products (WEEE(12), petrochemical products).

• Companies producing new generations of packaging (eco-packaging).

Examples of companies*: Séché Environnement (France), company specializing in the waste treatment and storage.

Shanks (United Kingdom), company specializing in collection, transportation, sorting, grouping, recycling and recovery of waste.

Hera (France), company whose activities meet waste treatment and energy generation needs.

Suez Environnement (France), specialist in the household waste treatment industry. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(12) Waste Electrical and Electronic Equipment; (13) Program launched in 2007 on the initiative of the United Nations University; (14) Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal;

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2 questions for...

Suzanne Senellart Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Do you not think that tackling pollution from a waste management perspective is rather simplistic?

Waste is a major contributor to air, water and soil pollution in general. That is why we adopted this investment theme. Take household waste management for example: the storage of organic waste produces methane, which is a greenhouse gas. Treating household waste enables the resulting gas to be captured and then put to further use.

Due to the implementation of a European eco-design directive, the practice of discharging waste without capturing greenhouse gases is being discontinued in favor of landfill centers designed to recover and reuse the biogas in different ways (heating networks, biofuel, power generation).

In addition, the European directives aim to achieve recycling rates of 50% of household waste and 70% of construction waste by 2020. We endeavor to invest in companies that are active in these areas and benefit from clear and visible regulation.

You have chosen to invest in a broader, more general selection of utilities, are there other ways to recover waste?

We also invest in groups called "multi-utilities' active in both waste and water management. Waste recovery is implemented in the sanitation sector, for example, through the recovery of sludge in sewage treatment plants. Current regulations encourage energy recovery or transformation into organic compost.

Note that the European Directive of 26 April 1999 is gradually reducing the landfilling of sludge and encourages direct recovery or recovery by conversion into an organic product. In France the landfilling of sludge has been prohibited since 2002.

The regulatory framework for waste • STEP “Solving The E-waste Problem”: United Nations program aimed at reducing environmental pollution caused by electronic waste by adopting overall guidelines for the treatment of this type of waste and promoting sustainable recovery methods(13).

• Basel Convention of 5 May 1992: European convention on movements of hazardous wastes(14).

• Polluter Pays Principle; the Landfill Directive of 1992(15), which aims to limit authorized landfill waste.

• European Directive on Garbage Incineration(5): directive on the reduction of waste produced in manufacturing and marketing phases.

(15) Organisation for Economic Co-operation and Development (OECD), principle 16 of the Rio Declaration on Environment and Development; (16) European Directive on Garbage Incineration (2000/76/EC).

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b e t t e r management OF NATURAL RESOU RC ES

Water management The challenges Rethinking our production and consumption of water to take into account climate change impacts.

n Prospect of more intensive water consumption

Projected water scarcity in 2025 Physycal water scarcity

Economical water scarcity

Little or no scarcity

Not estimated

• Water consumption has risen sharply in the last 50 years, quadrupling between 1940 and 1990(1). It will continue to grow due to a combination of structural factors: - Global demographic growth: 1.5bn inhabitants in 1900, 6.7bn today, 9bn in 2050(2) according to forecasts of a United Nations report.

- Massive increase in water requirements due to economic growth, more specifically due to the industrial development of emerging countries (India, China, Brazil).

- Increasing importance of irrigation-based agriculture - which is the main consumer of water (around 70%) - followed by the industrial sector (20%) and households (10%)(3).

n Global warming will redistribute water resources

Source: IWMI (Input for the World Water Vision), The Hague, march 2000

• Climate studies show that drought will intensify across dry regions, whereas precipitation will increase in wet regions.

• Fresh water reserves are declining, particularly due to retracting glaciers.

Key facts n 100 to 300 times more expensive: the average cost of bottled water compared to tap water(5) n 88 % of all diseases result from the consumption of non-drinkable water, poor hygiene and inadequate sanitary installations(6) n Between 4 and 9 billion: the number of people who will be affected by hydric stress by 2075(7)

• Water availability varies greatly among geographic regions. The Amazon Basin represents only 0.3% of the global population but has15% of fresh water reserves.

Asia, with almost 60% of the global population, has only 30% of the world’s fresh water resources(4).

n Inappropriate consumption considering climate change • Intensive use of fresh water in developed countries; • Pollution of water by agriculture (use of nitrates and pesticides); • Pollution of water by industrial companies (chemicals, toxic waste).

n 16,000 litres: the amount of water required to produce 1 kg of beef(8)

(1, 2) These figures are taken from the 2004 Revision of the official demographic estimates and projections of the United Nations, published today by the Population Division of the Department of Economic and Social Affairs (DESA). (3) United Nations Environment Programme, Global Environment Outlook, GEO-3 of 2001. (4) World Water Council studies and World Development Indicators, World Bank, 2000. (5) “Centre d’information de l’eau”, 2007. (6) Water Partners International. (7) Water Systems Analysis Group, University of New Hampshire – “Hydric stress” describes a situation in which demand for water exceeds the available resources. (8) United Nations World Report "Water in a Changing World".

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bett e r m a n a g e m e n t O F NATURA L RESOU RCES

Water management INVESTMENT OPPORTUNITIES Water management is a universal affair, involving public and private operators, households and businesses. Water management encompasses numerous investment opportunities. nW ater treatment and distribution • Disinfection, filtration and purification of waste water • Production of fresh water by purification and desalination • Industrial subcontracting: production of valves, pumps, membranes nT echnologies to reduce fresh water consumption • Domestic consumption: water economizers, solar water heating • Development and renewal of infrastructure. The World Water Council estimates the necessary investments at $180 billion per year for the next 25 years, compared to the current annual investment of $75 billion(9) • Agriculture: new irrigation systems, water purification

Examples of companies*: • Veolia Environnement (France), specialist in the management of water and sanitation services for public authorities and industrial users.

• Northumbrian Water Group (United Kingdom), specialist in the management of water services for private consumers.

• Geberit (France), company specializing in water-saving technologies.

• Nalco (United States), manufacturer of equipment based on industrial and municipal water treatment technologies. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(9) Data supplied by the World Water Council, an NGO supported by UNESCO and the World Bank.

(10) Directive adopted by the Parliament, the Council and the European Commission in 2000.

(11) The national application of the European Directive of 12 December 1991 known as the "Nitrates Directive", relating to the protection of water against pollution by nitrates of agricultural origin.

(12) Law 2006-1772 on Water and Aquatic Environments was promulgated on 30 December 2006 (O.J. of 31/12/2006) (13): WHO report on bottled water, 2000.

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2 questions for...

Suzanne Senellart Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Surely water treatment techniques you invest in consume energy themselves? Does that not clash with the purpose of your approach?

Our approach covers all water treatment technologies, due to the major issues involved in supplying drinking water to large urban areas in the decades ahead. It is a genuine technological and environmental challenge associated with the acceleration of urbanization. We are therefore interested in all activities and technologies that are liable to meet the vital needs of the population while reducing the carbon footprint. Take the example of desalination: this fast-growing technology consumes large amounts of energy but is essential in dealing with the problem of drinking water supplies in some regions. At this stage, it is used only in desert regions such as the Middle East, Australia, etc.Industry leaders in water treatment incorporate into the production process part of the renewable energy-based energy supply to lessen to GHG emissions generated by the production cycle. We are monitoring this project closely.

Is bottled water production among the investment opportunities targeted in your approach?

We have chosen not to invest in bottled water production, as it goes against our investment principles. Bottled water production is extremely polluting.

18 billion(13) litres of bottled water are consumed outside their country of origin each year around the world. The resulting consumption of primary energy and raw materials bears no comparison with the water produced and distributed in the public system.

The regulatory framework for water Numerous directives have been adopted to regulate water pollution sources since the beginning of the 1990s.

• European Union member states are required by a directive to install domestic waste water collection and treatment systems(10).

• Another directive concerns the reduction of water pollution by nitrates of agricultural origin(11).

• A French “water solidarity" law authorizes local authorities and public bodies to devote 1% of their water department’ resources to decentralized co-operation initiatives with developing countries(12).

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b e t t e r management OF NATURAL RESOU RC ES

Land management The challenges Adopting better agricultural practices to meet the growing demand for food while preserving the environment and forests.

Weight of agriculture and use of lands in greenhouse gaz emission Agriculture: 14,9 %

38,1 %

lands use, deforestation: 18,2 %

Under the approach we have adopted, land management covers agriculture and forestry.

These two sectors are closely linked to climate change: on the one hand they play a role in global warming by emitting greenhouse gases (18.2%(1) of total emissions are the result of deforestation and 14.9%(2) agricultural exploitation); on the other hand these sectors suffer the direct impact of global warming: hurricanes, storms, droughts, hailstorms, floods and fires. In light of the key role that agriculture occupies in the food chain, sustainable land management is a major concern. n Demand for food will continue to grow in the future

61,9 %

Rest of global greenhouse gaz emission: 61,9 %

Key facts n The destruction of peatland and forests in Indonesia is responsible for 4 % of anual global carbon emission. n 75 % of anual carbon emission in Brasil comes from deforestation(5). Brazil engage reducing by 80 % of deforestation by 2020 n 8 000: The number of trees cut in the time it takes to read this page(7). n 2 times the size of Paris: is the equivalent area of forest wich disappear each day(8).

• The global population is constantly growing: it has increased from 1.5 billion in 1900 to 6.7 billion today, and is expected to grow to 9 billion by 2050(3).

• The industrial development of emerging countries (India, China, Brazil) is occurring in parallel with improving life styles and increasing urbanization (two-thirds of the global population will live in cities in 2050).

• Changes in eating habits, particularly in developing countries, are leading to higher consumption of meat and dairy products, the production of which consumes large amounts of energy.

• At the same time, there is strong competition among those wanting to use the available land for urbanization, the production of biofuels and forestry projects for carbon sequestration. Furthermore the development of single-crop farming of soya or maize in some developing countries is detrimental to the maintenance of local agricultural diversity (such as fruit and vegetables). n Our production methods impair soil quality • Intensive agriculture (mechanization, massive use of fertilizers and pesticides) is leading to soil exhaustion and a loss of biodiversity.

• Massive extraction of fossil fuels over the last century has contributed strongly to soil pollution.

• Agriculture consumes 70% of the world’s fresh water reserves, followed by manufacturing (20%) and households (10%).

• In Europe, 47% of food contains pesticides, including 5% which breach regulations (exceeding maximum residue levels – MRLs)(4).

n Climate change threatens agricultural yields • Desertification will considerably reduce yields in some low latitude regions of the world.

• In regions affected by increasing rainfall, soils may be subject to accelerated erosion.

• Global warming may cause a proliferation of harmful species which attack crops.

• Climate disasters may devastate the productive capacity of the most exposed regions. n The negative impact of deforestation One of the important functions of the forests is their capacity for the natural absorption of CO2. Massive deforestation, particularly in developing countries (across Amazonia and in Asia) poses a serious threat to the climate and reduces soil protection against extreme weather events.

(1; 2) According to data from the Intergovernmental Panel on Climate Change, IPCC, in 2007. (3) These figures are taken from the 2004 Revision of the official demographic estimates and projections of the United Nations, published today by the Population Division of the Department of Economic and Social Affairs (DESA). (3) United Nations Environment Programme, Global Environment Outlook, GEO-3 of 2001. (4) 2004 report "Monitoring of Pesticide Residues in Products of Plant Origin in the European Union" of the Directorate General for Health and Consumer Protection of the European Commission. (5) Data from the "Billion Tree Campaign" of the United Nations Environment Programme (UNEP). This program was launched in 2001. (7) Estimates from the planetscope site. (8) Report on the State of the World’s Forests dated 13 March 2007 published by the Food and Agriculture Organization of the United Nations (FAO).

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bett e r m a n a g e m e n t O F NATURA L RESOU RCES

Land management INVESTMENT OPPORTUNITIES Sustainable land management meets two major objectives: maximizing agricultural yields (against a backdrop of increasingly scarce cultivable acreage and constantly rising demand for food goods), while ensuring environmental protection. This theme generates numerous investment opportunities, more generally upstream of the food chain: from the production of goods to consumer delivery. n Producers of mineral fertilizers using minerals extracted from the subsoil (phosphate, potash). n Companies involved in the collection and treatment of waste, which is turned into organic fertilizer. n Manufacturers of agricultural equipment and materials: tractors, containers, innovative irrigation systems. n Companies involved in refrigeration, storage and transportation of food goods aiming to reduce food losses between the producer and the consumer. n Companies holding forestry assets: we believe these assets may rise significantly in value (off current low valuation levels) as forests are assigned carbon credits post-Kyoto legislation.

We will favor owners of forestry assets who demonstrate responsible practices (in terms of felling, new plantations or preservation of the oldest trees). These operators may form part of the paper and pulp industry or carry out industrial activities associated with the wood industry.

Examples of companies*: • Mosaic (Canada): second-largest fertilizer producer in North America and second-largest potash producer in the world.

• Shanks (UK): specialised in waste management (sorting, recycling and recovery).

• Duratex (Brazil): manufacturer of wooden furniture and owner of 110,000 ha of eucalyptus forest.

• Suzano (Brazil): fully integrated producer of paper and pulp in Latin America. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(9) Report of the ONF international, May 2007.

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2 questions for...

Clotilde Basselier Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

What is your investment philosophy in land management and on what criteria do you base stock selection?

We are mainly interested in companies producing fertilizers or even potash producers, but we exclude pesticide manufacturers if the companies concerned also produce GMOs. In order to meet the key challenge represented by global population growth over the forthcoming decades, the use of fertilizers remains one of the principal means of improving agricultural yields. In addition to the fact that chemical fertilizers can be combined with natural fertilizers, it is essential to educate farmers on the judicious use of fertilizers. The same applies to the responsible use of pesticides. We select stocks on the basis of various criteria: expertise in fertilizer production, innovative capability, reduction of process-linked emissions and overall environmental practices.

Holders of forestry assets: a source of carbon credits What is your position on the production of Genetically Modified Organisms? Do you automatically exclude this activity from your investment universe?

We systematically exclude GMO producers from our investment universe, as we do not yet know what long-term consequences these products will have for human health and the environment. We adopt a precautionary stance with regard to GMO .

As we have emphasized, there are other ways of meeting the challenge of food sufficiency this century: fertilizers, equipment, better practices‌ or simply favoring proximity and seasonality of products that are consumed.

Carbon credits are units allocated to project initiators, such as holders of forestry assets which reduce greenhouse gas emissions. The holders of these credits can then sell them to emitters who exceed their carbon credit allowances and have to buy credits to avoid liability.

Forestry projects in the carbon credit market amounted to $250 million in 2006 and currently account for 1% of transactions(9).

Hence there are numerous opportunities for these holders of forestry assets. Combating deforestation, or promoting afforestation and reafforestation projects, therefore appears to be an important means of combating climate change.

The selection of forestry assets offers attractive financial opportunities, particularly with regard to the carbon market.

(9) Rapport de l’ONF international de Mai 2007.

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Ada p tat i o n T O T HE CO N SEQU ENC ES OF CL IMATE CH ANGE

The challenges

Adaptation of infrastructure

Consolidating existing infrastructure across industrialized countries and adapting new structures in developing countries to withstand the consequences of climate change.

After construction

During construction

Before construction

Different types of solutions to adapt infrastructure to climate change Infrastructure life cycle

Various ways to implement or facilitate adaptation

Decision

Decisionmaking tool

Planning

Politicies

Design

Standards and regulations

Construction

Technology

Maintenance

Awareness raising

Rehabilitation

Expertise, monitoring, data

Involve various individuals, authorities, industries governments, etc. (i.e. all participants in a system) Likely issues in reducing greenhouse gas emissions at each stage (i.e. adaptation solutions developed with a view of greenhouse gases) Increased vulnerability: with or without climate change (i.e. low-quality development, ageing, etc.)

Source: Gosselin et al., 2005.

Key Facts n $8-130 billion per year: estimated cost of adapting infrastructure globally by 2030(3). n 76% : proportion of climate change adaptation measures represented by infrastructure(3). n $25 billion: estimated cost of adapting infrastructure to rising sea levels alone by 2030(3). n $218 billion: amount of economic losses due to natural catastrophes and man-made disasters in 2010(4).

The increase in the number and frequency of climate disasters poses a growing threat to people and infrastructure alike. Hurricane Katrina, which struck the United States in August 2005, ravaged a total area of 235,000 km2, leaving destruction, flooding and desolation in its wake. The total economic losses were assessed at $125 billion (1). The tsunami which hit the coasts of several Indian Ocean territories in December 2004 caused damage worth over $10 billion and claimed more than 140,000 lives(2). n The impacts of climate change on infrastructure • Climate Change modifies the level of risk towards extreme weather events and calls into question the rules governing the design of specific construction projects.

• In addition to the immediate and devastating effects of natural disasters, there is a risk that the long-term consequences of climate change will cause accelerated deterioration of infrastructure: - rising sea levels endanger certain coastal regions; - higher rainfall increases the number of floods; - road surfaces buckle due to rising temperatures; - Clay soil droughts weaken building infrastructure. n The need to strengthen infrastructure in risky areas • There is a clear need to consolidate existing infrastructure in areas most exposed to natural disasters, particularly in the light of the major damage caused by Hurricane Katrina in Louisiana and New Orleans in 2005. Infrastructure includes dykes, dams, bridges, roads, etc.

• This issue particularly applies to developing countries, which are potentially more exposed to climate disasters. There is also a structural need to build new infrastructure in these countries, due to both population growth and economic development. It is essential that new investment takes into account the potential impact of climate change.

• The adaptation of infrastructure to the consequences of climate change also involves infrastructure having a primary purpose other than protection, such as road or rail transport networks, buildings, production and distribution networks for water and energy. Such infrastructure must be robust and flexible to ensure that it can operate in different and uncertain climate conditions. n Revisions to standards and protocols of design and construction • Public authorities have begun to incorporate the climate change factor to their analytical framework: - Design criteria and applied technology reviews (earthquake and cyclone protection standards, etc.); - Reassessment of national and regional planning policies; - Introduction of improved emergency measures; - Development of preventive warning systems, etc.

(1) Source: Federal Emergency Management Agency (FEMA) and National Oceanic and Atmospheric Administration of the United States; (2) United Nations estimates, 2005; (3) Estimates by the UNFCC (United Nations Framework Convention on Climate Change), 2007; (4) Swiss Re Sigma report - February 2011

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Ad ap tat i on T O T HE C ON SEQU ENC ES OF CL IMATE CH ANGE

Adaptation of infrastructure INVESTMENT OPPORTUNITIES As emerging economies industrialize, we expect global infrastructure spending to continue to accelerate. Even China lags behind advanced economies on key infrastructure indicators, such as power consumption, railways or water networks. We find investment opportunities in the construction sector, but also among companies engaged in recycling activities or offering consulting & engineering services. nM ining companies producing raw materials (iron ore, limestone quarries, etc). n Steel producers. n Steel waste recycling companies. n Construction materials producers (cement, concrete, aggregates, plaster etc.). nO perators in the construction and public service sectors. n Companies specializing in certification and standards compliance (environmental, construction, etc.).

Our analysis incorporates a geographic dimension, taking into account the structural growth of infrastructure in developing countries (particularly rail networks and efficient buildings).

Exemples de sociétés * : • Posco (Korea), Korea’s largest fully integrated steel producer and the fourth largest operator in the world.

• China Metal Recycling (China), China’s largest recycler of waste from ferrous and non-ferrous metals.

• CRH (Ireland), the second-largest global player in construction materials.

• Lafarge (France), the world’s largest cement producer.

• Nucor (USA), one of the main steel producers in the United States and the country’s largest steel waste recycling group.

• SGS (Switzerland), global leader in verification, inspection, analysis and certification. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio

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2 questions for...

Clotilde Basselier Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Why does your investment scope include construction materials, some of which are considered highly polluting, such as cement?

The construction and infrastructure sector is expected to see strong growth in the next few years, for structural reasons associated with the increase in population and economic development in the emerging countries. This growth will inevitably increase demand for construction materials. It is true that some of these materials cause pollution, such as cement and steel, which alone represent 5-6% of total greenhouse gas emissions. However, within these so-called polluting sectors, our stock selection is based on an analysis of energy efficiency with regard to the supply chain, the production process and product openings. It is important to remember that regulations in force in some countries (CO2 emission allowances in Europe) promote best practices, since companies are compelled to invest in order to modernize and increase the efficiency of their production resources and make them more efficient.

Inevitably companies in these sectors will be negatively impacted by climate change, even if their practices are “virtuous”?

Not necessarily. In these traditional sectors, where carbon intensity plays a major role, companies can gain a considerable competitive advantage by exploring new low GHG production patterns. For example, some companies are developing new materials such as mixed cement and light steel, which allows for a reduction in greenhouse gas emissions for end-products (buildings or vehicles). For that reason, our selection of stocks in these sectors is based on a “best-in-class” approach, but also based on an analysis of the overall environmental strategy for each company, including the development of innovative products associated with climate change

Green development of infrastructure in China Contrary to popular belief, emerging countries are extremely active on the climate change issue. That is particularly true for China, which has understood that its economic development cannot ignore this new environmental dimension. China’s 12th Five Year Plan (2011-15) aims at reducing energy intensity while boosting 7 Strategic Emerging Industries, including Energy saving & environmental protection, New materials and High-end equipments. High-speed railway and urban rail transit are seen as key development areas.

Ministry of Railways has set a total infrastructure budget of Rmb12trillion over the period 2011-15. Rail network is expected to reach 120,000 km by 2015, compared with 91,000 km in 2010.

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Ada p tat i o n T O T HE CO N SEQU ENC ES OF CL IMATE CH ANGE

Insurance and management of climate change risk

The challenges

Adapting insurance cover for natural disasters caused by climate change. Developing risk prevention and offering new products.

Breakdown of natural disaster costs insured around the world in 2007, per peril(1) Earthquakes 19%

Storms 29%

The number of natural disasters doubled between 1960 and 1990 and insured losses increased seven fold over the same period. 2005 was the worst year for the reinsurance industry, with claims totaling $83 billion (property damage), over 90% of which resulted from natural disasters (notably Hurricane Katrina).

According to the UN, nine out of ten natural disasters are now associated with climate change. They have different impacts on industrialized and developing countries. n An increasingly high economic cost for the industrialized countries • The industrialized countries tend to suffer growing economic losses, largely due to the high concentration of wealth in high-risk areas (e.g. Florida).

• These developed countries are nevertheless increasingly well prepared to cope with extreme weather events:

Other events 8%

Floods 28%

- Early warning systems have been developed to anticipate natural disaster occurrence.

- Medical care for victims and emergency response is generally more effective in developed countries.

- Although only a small part of the market, new insurance instruments have been introduced. For example, “cat bonds” have attracted external investors.

Key facts n $629 billion: the amount of economic losses associated directly with natural disasters over a 20-year period(2). n $197 billion: global total of reinsurance premiums This figure rose by 2.6 times between 1990 and 2009(3). n 23,000 atomic bombs similar to Hiroshima: Equivalent of energy produced by the earthquake in Indonesia on December, the 26th 2004 (tsunami)(4). n 304,000 : the number of people who were victims of catastrophic events in 2010, of which 222 000 died in the massive earthquake that struck Haiti in January(5).

n A devastating human and economic impact on growth of developing countries • Developing countries are severely exposed to natural disasters: the effects of climate change are most visible in these regions (floods, drought, violent storms). However, these countries generally remain underinsured.

• The human, social and economic losses caused by disasters have considerable impacts on populations, often among the poorest in the world.

- Developing countries are worst affected in terms of human losses: a hurricane of the same strength causes 140,000 deaths in Burma but only 30 in the United States. Another alarming indicator: "Three quarters of those who die as a result of floods live in three Asian countries: Bangladesh, China and India,” states Ban Ki-moon, Secretary-General of the United Nations(6).

- Economic losses as a percentage of GDP are 20 times higher in developing countries than in developed countries(7). n Preventive solutions: a major issue for insurance companies • The overhaul of models used to assess natural disasters (RMS, Eqecat)(8), the creation of early warning systems ("National Hurricane Center") and more secure construction standards are preventive measures to face higher climate risks.

• These preventive measures are key in the current context and contribute towards the economy’s ability to adapt to climate change: all effective preventive solutions reduce the cost of damage for an insurance company and ultimately for society.

• Total economic losses caused by natural disasters in the United States in the 1990s could have been reduced by $280 billion if $40 billion had been invested in prevention systems(9).

(1) Source: Ubyrisk Consultants, Suisse Re, Munich Re, Catnat.net; (2) According to the International Red Cross Report on Worldwide Natural Disasters; (3) Source: IAIS Global Reinsurance Market Report 2009; (4) Amiens Educational Research and Documentation Center, data from a report entitled "Les séismes", 2006;

(5) Swiss Re Sigma report - February 2011; (6) "Global Assessment Report on Disaster Risk Reduction 2009", UN report, May 2009; (7) Source: UN and Swiss Re, 10 April 2009; (8) Natural disaster modeling tools; (9) United States Geological Survey.

13

Ad ap tat i on T O T HE C ON SEQU ENC ES OF CL IMATE CH ANGE

Insurance and management of climate chang INVESTMENT OPPORTUNITIES The increasing frequency and intensity of natural disasters is an inevitable consequence of climate change. Insurers and reinsurers are therefore taking on a major role in managing the losses associated with climate disruptions. n New opportunities are opening up for reinsurers: •G rowing demand for natural disaster coverage, particularly in developed countries, due to increasing concentration of wealth across specific regions.

•G rowth in coverage requirements of developing countries, which are traditionally underinsured, where reinsurers take part in publicprivate projects.

Reinsurers have two ways to face the growing cost of natural disasters: increase rates and preventive measures (maintenance/ infrastructure consolidation in coastal regions). nT o face the emergence of new risks, new products are also appearing: • Weather derivatives are available to farmers to protect themselves against the destruction of their crops following torrential rain or hailstorms.

They provide a targeted solution for risks resulting from climate disturbance.

• Development of tailored products: insurers and reinsurers are offering coverage adapted to new activities associated with climate change and thereby contributing toward rapid product expansion. Take for example a wind farm in India: the insurer can offer his customer coverage against technical problems and can also pay him compensation for the loss of CO2 certificates associated with these technical problems (profit loss).

More widely, the insurance and reinsurance industry has a role to play alongside governments and ecological organizations in raising awareness on climate change issues. That is particularly the role of The Geneva Association, an insurance think-tank that unites 80 CEOs of the world’s largest insurers.

Examples of companies*: Munich RE (Germany), the largest reinsurer in the world.

Swiss Re (Switzerland), the second largest reinsurer in the world.

Allianz (Germany), the largest insurer in Germany and one of the leaders in Europe.

Axa (France), the largest insurer in France and one of the world’s leaders.

The companies included in Natixis Asset Management’s "climate change" investment universe must show the following characteristics: wide diversification of risks (by sector and geographic region), significant size, strong financial structure and proven innovative capability. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(10) A cat bond is a bond which offers a high yield but the repayment of the principal depends on the occurrence of a natural disaster

14

ge risk 2 questions for...

Clotilde Basselier Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Please could you elaborate on how the insurance sector enters within the scope of the climate change theme and hence becomes part of your investment hunting ground?

It is true that you would generally expect to find sectors such as clean energy, water management or sustainable transport in this theme. However, reinsurance clearly has its place in our investment universe, if only due to the intensification of natural disasters.

Indeed, investing in businesses whose activity is based on natural disasters seems far from the theme of responsible investment‌ Some consequences of climate change are irreversible, such as the temperature rising by around 2°C which reinsurers consider to be a certainty. As a result natural disasters are more frequent and more intense. Beyond indemnifying for damages associated with these extreme events, reinsurers aim to play a major role in combating global warming: raising awareness among the population, developing public-private partnerships in developing countries, incentives in terms of energy efficiency, creation of new products in the field of alternative energy, etc.

New financial instruments such as cat bonds(10) have appeared in the reinsurance to cover the risks linked with natural disasters. During the financial crisis, the finger was pointed at derivatives. Isn’t it contradictory to be investing in this type of product?

The cat bond market is still a very small component of reinsurance activity.

These products have been largely modified post crisis, particularly in terms of how assets were invested. The majority of activity within reinsurance for natural disasters will continue to be conducted via traditional contracts where pricing reflects the nature and scale of risks covered.

Reinsurer finances a scientific expedition to the Arctic Catlin Group, a specialty property and casualty insurer and reinsurer, sponsored a survey aiming at measuring the thickness of the ice layer in the Arctic Ocean. This 73-day mission was conducted in collaboration with a group of international scientists in order to provide vital information to measure the effects of global warming on polar ice caps. The results of this exploration were presented at the Copenhagen summit in December 2009. Since then, two other expeditions have been launched. The Arctic Survey 2010 focused on the implications of sea ice loss, specifically ocean change and acidification. The Arctic Survey 2011, which began in March, focuses on evolving conditions in the Arctic Ocean that could cause changes in the ocean currents that influence the prevailing climate of Europe and the East Coast of North America.

15

Ada p tat i o n T O T HE CO N SEQU ENC ES OF CL IMATE CH ANGE

Changing consumer behavior The challenges Favoring business sectors that meet new consumer citizen requirements in terms of climate change. Encouraging the population to adopt a sustainable approach to consumer habits that govern lifestyles.

Forecast for the consumer e-commerce market in the United States 2008-2013 (in billions of dollars and in %) 2008

$ 133.6 bn $ 133.1 bn 9.8 %

2010 2011 2012

$ 146.1 bn

13.3 %

$ 165.6 bn $ 184.5 bn

2013

• Important media coverage of environmental issues supported by initiatives from nongovernmental organizations and opinion leaders (Yann-Arthus Bertrand’s “Home”, Al Gore’s “Inconvenient Truth”).

• Government directives and incentives. For example, the European eco-design directive 2005/32/EC aims to reduce the environmental impact of energy-consuming products and is one of the pillars of the EU's energy-efficiency strategy.

-0.4 % 2009

n Changes in consumer behavior stimulated by:

11.4 % 10.3 %

$ 203.5 bn

Note: these figures exclude online sales associated with travel, digital downloads and sales of leisure tickets (concerts, theater Source: e-marketer.com, February 2009

Key facts n Over $200 billion: forecasted private consumer internet sales in the United States by 2013(3). n One plastic bag is produced in one minute, used for 20 minutes and takes 400 years to disintegrate(4). n Sweden is the largest consumer of organic products, with an average consumption three times higher than the rest of Europe(5). n One French Internet user in two suses internet banking(6).

• Consumers account for 60% of global GDP and 60% of CO2 emissions, their individual behaviour will have a huge impact on climate change.

• According to European opinion polls, slightly more than 80% of EU citizens feel that a product’s impact on the environment is an important element when deciding which products to buy, and a large majority of consumers rated environmental impact as more important than a product’s brand name in terms of influencing their product purchasing decisions. A large majority say they often, take energy-efficiency into consideration when buying products that use electricity or fuel. n New technologies to respond to environmental issues • The development of e-commerce for trading goods and services is one of the solutions to reduce travel. Private consumer internet sales exceeded $140 billion in the United States in 2010(3).

• Remote Communication (videoconferencing, conference calls, etc.) reduces business travel and consequently the carbon impact by 30%(1). Remote means of communication are very widely used in business services such as consulting and advertising. 55% of European companies use remote communication facilities. n Consumer citizens in favor of sustainable-development products…

• Western populations are increasingly aware of the impact on the environment of their consumer behavior. This is reflected in the development of organic produce, fair trade, etc.

• Development of eco-consumption in personal care products (cosmetics), staple goods (organic products) and home care products (products containing fewer chemical agents). n … And new means of transportation • Increasing use of ecologically viable transportation such as rental bicycles (20 million bicycles spread over 1800 Vélib’s stations in Paris contributed to spare 40 000 tonnes of equivalent CO2)(2).

• Development of goods and services favouring responsible transportation (bicycles, public transport) as opposed to private means of transportation.

• Emergence of responsible tourism, based on the principle of travel having a limited impact on the environment (e.g.: reimbursement of carbon tax).

• Increasing interest in hybrid vehicles (hybrid cars and scooters).

(1) "Easy Things You Can Do To Help Our Climate" and the World Wildlife Fund (WWF) (2) www.jcdecaux.com/fr/Presse/Archives/2011/Velib-celebre-ses-100-millions-de-trajets-!

(3) Source: US E-Commerce Data

(4) Assessment of environmental impacts of Carrefour shopping bags in February 2004, conducted by ADEME (5) "The World of Organic Agriculture", IFOAM

16

Adap tat i o n T O T HE C ON SEQU ENC ES OF CL IMATE CH ANGE

Changing consumer behavior INVESTMENT OPPORTUNITIES Responsible consumption is progressively being incorporated into consumer behavior. The outlook is bright: planet and people friendly offerings are growing at a faster pace than their reference market.

Various activities are being developed to enable consumers to reduce environmental impact: n Product and service suppliers facilitating communication without intensive traveling or document printing (e.g. smartphones, laptops, web conference services, restricted online document sharing, etc.); n Online platforms to purchase goods or services (e.g.: e-commerce, online auction sites, e-banking etc.); nC onsumer good manufacturers are adapting to the new requirements of consumer citizens: personal care, home care, organic food products, etc.; n Ecological transportation (climate friendly transportation: bicycle rental networks; bicycle manufacturers, scooters, roller skates etc.); nT our operators and travel agencies specializing in sustainable tourism (short distance travel, carbon offset programs for travel, use of local resources).

Examples of companies*: Tandberg (Norway), specialist in videoconferencing and restricted-access online document sharing. eBay (United-States), online auction.

Amazon (United-States), online retailer.

Pierre et Vacances (France), tour operator positioned in sustainable tourism.

J-C Decaux (France), specialist in bicycle rental networks, initiator of the Vélib’ project.

Natura (Brazil), company specializing in organic beauty care and environmentally friendly products (catalogues made of recycled paper, ecopackaged products, etc.).

GIANT Manufacturing (Taiwan), leading bicycles manufacturing company, distributs its products under GIANT brand name. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(7) Emission trading scheme, recommendations of the Parliamentary Scrutiny Committee of New Zealand, September 2008

17

2 questions for...

Suzanne Senellart Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Is there not a risk that adopting such a broad subtheme as “Changing consumer behavior” will divert you from the main theme of your approach, i.e. Climate Change?

It is true that the subtheme “Changing consumer behavior” covers multiple sectors: from e-commerce, through sustainable tourism to the development of climate friendly means of transportation such as bicycles or trams.

Many players are trying to position themselves on the sustainable development market and take advantage of the media hype around it. It is then our duty to identify the sectors which are impacted by the climate change theme and to distinguish words from action.

A business sector only becomes investable within the scope of the “Changing consumer behavior" subtheme if we are convinced of the direct impact on climate change. For example, some new communication technologies (videoconferencing, online document sharing services, etc.) undeniably enable the reduction of CO2 emissions by limiting intensive travelling.

We also take into account the demand for the service or product in question in order to align industrial offering in terms of sustainable development with change in consumer behavior. We aim to anticipate future developments.

As well as relying on our own convictions, every six months we submit the subthemes to a scientific committee comprising independent experts to ensure that the Climate Change theme is adhered to.

How do you believe e-commerce reduces greenhouse gas emissions? The products still have to be manufactured and delivered...

It is true that products still have to be transported, but this process enables deliveries to be made to a large number of customers simultaneously.

E-commerce naturally limits consumer mobility, either when they are looking for and comparing products or when they are actually buying them. We know the major impact consumer mobility has on greenhouse gas emissions...

Carbon tax In an energy-importing country, a carbon tax favors plant and equipment that is designed to save energy and becomes a way of promoting the growth of companies operating in that market. Nearly a dozen countries have already introduced carbon taxing in order to reduce their carbon footprint.

These incentives lead us to rethink our consumption and production methods, particularly by favoring proximity.

Here are some examples: Sweden became one of the first countries in the world to develop this concept when it introduced a carbon tax in 1991, then set at €27 per tonne. At the same time, it lowered income-tax and some social charges so as not to place a heavier overall burden on households. The carbon tax is currently €108 per tonne. One-third of the energy consumed in Sweden now comes from renewable sources.

New Zealand attempted to introduce a carbon tax in 2005. Following its rejection by members of Parliament, the government finally set up a trading system for carbon emission allowances (carbon exchange)(7)

18

RE D U CTIO N OF GREEN HOUS E GAS EMISSION S

Energy efficiency of transportation

THE CHALLENGES

Developing the least polluting modes of mass transport and searching for innovative and sustainable solutions for personal transportation.

Comparison of CO2 emissions between the various modes of transport

Grams/tonne/km

600

• The automobile sector is responsible for three-quarters of the transport sector’s total emissions. In aggregate 600 million automobiles (private vehicles) and 200 million commercial vehicles (light and heavy vehicles) are currently in use around the world(3).

• Emissions from the transport sector are set to increase by 60% between now and 2030 if means of transport and technologies used remain the same, particularly due to the growing demand from developing countries. In China, total sales of cars grew 32% to 18.1 million vehicles in 2010, making the country the biggest car market in the world(4).

500 400 300 200

• Air transportation, for example, produces 520g of CO2 per tonne-kilometre, far more than rail, which generates only 25g of CO2 per tonne-kilometre – i.e. 20 times less CO2 than air transport over an equivalent distance.

100 0

n The transport sector accounts for 14 %(1) of the world’s CO2 emissions and is currently the largest consumer of oil. Fossil fuel accounts for 98%(2) of the energy used in transport.

Sea

Rail

Road

Air

Source: E uropean Commission

n The impact of polluting means of transport on the climate is prompting a shift in the transport mix towards public transport and a search for innovative solutions.

Key facts

• The development of public transport (rail, tram, metro, bus) is key in the quest for greater energy efficiency. Rail is a very advantageous alternative to trucks and aircrafts for intra-continental transportation.

n 130 times less CO2: average potential saving of combined transport(7) compared to a heavy goods vehicle in terms of emissions.

• Technological innovations are another way of reducing emissions in the transport sector, through the development of hybrid and electric vehicles and the use of biofuels, in addition to enhancements to existing technologies, such as lighter materials (iron and steel represent 70% of the weight of a car).

n2 2,000 Km: average distance covered by a pair of jeans sold in a hypermarket from the cotton field to the store(8).

• One solution to reduce greenhouse gas emissions is to change transportation habits (cycling or walking as alternatives to driving in cities) and developing individual initiatives (car sharing). These developments represent long term initiatives.

n 73 million: number of tonnes of CO2 emitted needlessly around the world each year due to inefficiencies in air transport infrastructure (9), the equivalent of Belgium’s CO2 emissions over one year(10). nA bus full of passengers (35 to 40 people) enables 40 vehicles to be removed from the road at peak times and thereby saves 70,000 litres of fuel per year(11).

n Regulation plays a major role in efficient transport.

• In 2000 France implemented a National Program to combat Climate Change (PNLCC) to meet the Kyoto targets. The program is based on 4 incentive measures: taxation, technology enhancement, regional public policy and raising awareness among transport users.

• The European Parliament’s Environment Committee aims to reduce private vehicle emissions from 150g of carbon dioxide per km today to 120g in 2012 and 95g in 2020(6).

• Ecological bonus: several European countries have opted for a system whereby private individuals receive a tax benefit when purchasing a vehicle fulfilling low CO2 emission criteria. Coupled with measures such as car scrappage schemes, the ecological bonus has led to a 7% rise in new vehicle sales in Europe in 2009 compared to 2008.

(1, 5) “Green Transport" sector report, SG Cross Asset Research, March 2009; (2, 3, 6, 8) Data from the French Environment and Energy Management Agency; Report of the Committee on the Environment, Public Health and Food Safety 2008; (4) CAAM (China Association of Automobile Manufacturers); (7) combination of several means of transport,

e.g. rail followed by road transportation for containers; (9) According to the IPCC (Report of Working Group III, May 2007); (10) Human Development Report 2007/2008, United Nations Development Programme; (11) French Ministry of Ecology, Energy, Sustainable Development and the Sea.

19

REDU CTI O N O F GREENH O U S E GA S EMI SS IO NS

Energy efficiency of transportation INVESTMENT OPPORTUNITIES The fight against CO2 emissions in the transport sector, underpinned by increasingly strict regulations and ambitious stimulus plans, is giving rise to numerous investment opportunities. nR ail transport: this sector is benefiting from buoyant long-term trends related to growing urbanization in developing countries and the worldwide fight against global warming.

• Manufacturers of rolling stock (from trams to high-speed trains), rail infrastructure builders and steel producers (rails).

• Companies producing rail signaling equipment.

• Suppliers of systems and services for the rail industry (air conditioning, braking systems, on-board electronics, platform doors, etc.).

• Rail transport operators. nA utomotive transport: there are numerous sources of improved energy efficiency in the automotive sector, both from existing technologies (combustion engines) and from new technologies (electric motors).

• Automobile manufacturers, leaders in the production of hybrid or electric vehicles.

• Battery manufacturers (lithium-ion technology).

• Auto parts manufacturers.

• Tyre manufacturers (green tyres).

• Producers of raw materials and light materials (aluminum, composites).

Examples of companies*: • Bombardier (Canada), world’s largest manufacturer of railway rolling stock.

• Ansaldo (Italy), one of the leaders in the railway signaling equipment market.

• Eurotunnel (France), holder of the Channel Tunnel concession up to 2086.

• Toyota (Japan), world’s largest auto manufacturer and leader in the hybrid vehicle segment.

• Michelin (France), one of the world’s largest tyre manufacturers.

(12) “Green Transport” sector report by Société Générale, March 2009.

20

2 questions for...

Clotilde Basselier Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

What is your position on air transportation?

We have chosen to exclude aeronautical companies from our investment universe. The sector’s emissions have increased by 90% since 1990 and could double by 2020 (12) if no measures are taken to curb the rise. Air transport currently accounts for 13% of total emissions for the entire transport sector.

With regard to mass passenger transport, we have a marked preference for rail (2% of transport emissions). By way of comparison, rail sector emissions in Europe fell by 20% between 1990 and 2000 due to better energy efficiency.

What is the future for hybrid and electric cars?

But, as you will acknowledge, rail transport or hybrid vehicles will never be a substitute for air travel in certain cases...

Which means of transport do you favor for long-distance travel?

It is true that aircraft carriers are still essential when it comes to crossing oceans. Nevertheless, rail transport is a very effective substitute for air transport for journeys across a single continent. High-speed trains are more competitive in terms of energy consumption per km on medium-distance routes. China, for example, plans to invest Rmb2,800 billion ($434 bn) over 5 years to expand its rail network, to a total of 120,000 km by 2015.

According to the Ministry of Railways, high-speed rail should reach 25,000 km by 2015, offering numerous opportunities for leaders in construction and railway equipment around the world.

Vehicles with hybrid engines currently account for 1% of the fleet in Europe, 2.5% in the US and more than 10% in Japan. Automobile manufacturers want to secure a larger market share in industrialized countries, but also invest in developing countries. Consequently, there are numerous investment opportunities.

Toyota, for example, plans for 30% of its fleet to consist of hybrid vehicles by 2020. Toyota launched the first hybrid drive car 12 years ago consistent with the company’s strategy of developing hybrid vehicles in a fast-growing market.

The electric vehicle market is currently a niche market and does not offer the same development prospects as the hybrid vehicle market. Currently hybrid vehicles have a limited range and a high price which is holding back technology development. However, Renault has announced its intention to equip 10% of its fleet with electric motors by 2020.

21

RE D U CTIO N OF GREEN HOUS E GAS EMISSION S

Building energy efficiency

THE CHALLENGES

Reducing the energy consumption of buildings by renovating ageing structures across developed countries. Supporting the urbanization of developing countries with eco-efficient buildings.

Almost 40% of energy consumption comes from commercial and residential buildings

n 30% to 40% of global energy consumption is caused by construction and building usage.

This consumption may soar due to various cyclical and structural factors • Growth of the world’s population and consequently the increase of housing demand

Transport 30 %

Industry 29 %

• Construction boom in Asia, the Middle East and Latin America. In 2008, 50% of buildings constructed in the world were built in China(1).

• Ageing infrastructure in developed countries. 60% of buildings in Europe are more than 30 years old.

n Almost 90% of the energy used by a building during its life results from its utilization: heating, ventilation, lighting, electrical equipment… Only 10% of total energy is consumed during construction, material production and demolition.

Other sectors 5% Commercial 9%

Residential 27 %

Source : SG Equity Research, "Green building and construction", march 2009

Key facts n $600 billion: Amount the United States could save between now and 2020 by improving the energy efficiency of buildings(2) n €1 billion: annual revenues generated by the insulation market in France(3) n 900,000 buildings in New York account for 79% of the city’s total greenhouse gas emissions(4) n $950-1,000 billion total amount of the global green buildings market(5).

n Numerous initiatives and legislative measures have been taken to encourage the use of ecoefficient techniques, in both the construction and renovation phases: • The Sustainable Building Construction Initiative (SBCI), introduced in the framework of the United Nations Environment Program (UNEP), aims to promote more environmental-friendly practices and determine evaluation criteria for construction .

• Energy Efficiency in Buildings (EEB), a project initiated in the framework of the WBCSD* in partnership with United Technologies, bringing together 14 multinationals. The objective is to change the way buildings are constructed and, by 2050, to construct buildings that are selfsufficient in energy and no longer emit CO2.

• In the United States: the Energy Independence and Security Act adopted in December 2007 aims to reduce energy consumption in US federal buildings by 30% between now and 2015; in the same manner, the "High Performance Green Building Act" has recently been adopted.

• In Europe: the European Commission adopted the Energy Performance of Buildings Directive (EPBD) in 2003, which aims to increase energy efficiency of public, commercial and private buildings in all member states. * World Business Council for Sustainable Development

• In addition to these legislative measures, new environmental-friendly standards are being developed in the construction sector: - LEED (Leadership in Energy and Environmental Design) in the United States, Canada, Mexico and Brazil.

- HQE (Haute Qualité Environnementale) in France.

(1) UNEP report “The Kyoto Protocol, the Clean Development Mechanism, and the Building and Construction Sector”, estimations based on the results of over 80 studies around the world cited in the report; (2) Report of the McKinsey Group, July 2009;

(3) Data taken from the website www.planetoscope.com; (4) "L’Empire state building se met au vert", Les Echos, 5 May 2009; (5) Source: World Business Council for Sustainable Development (WBCSD), Report on the Energy Performance of Buildings, April 2007.

22

MITIGATI O N: RE D U CTI ON O F GREEN HOUS E GA S EMI SSI O N S

Building energy efficiency INVESTMENT OPPORTUNITIES In developed countries, reducing the energy consumption of existing buildings is the most reliable way to combat greenhouse gas emissions. In developing countries, which are undergoing substantial urbanization, the challenge is to adopt eco-efficient construction solutions from start. That applies particularly in China, where almost 2 billion m² of new area will be built each year up to 2020(6). n According to the WBCSD, the global market in green buildings represents $950-1,000 billion(5). n Regulation (for the construction of new buildings or the renovation of existing ones) acts as a powerful catalyst on that market. n Numerous sectors of the economy are potentially affected by this theme: • Insulation solutions; • High-performance glazing; • Low-energy lighting; • Control systems (e.g. HVAC: Heating, Ventilating and Air Conditioning); • Clean building materials; • Use of alternative energies (e.g. solar energy).

Examples of companies*: Saint Gobain (France), glazing manufacturer, specialist in insulation and ecologically neutral materials.

Rockwool International (Denmark), the world’s number two in insulation.

Uralita (Spain), leader in insulation materials in Spain.

Zumtobel (Austria), European leader in professional lighting (including light-emitting diodes).

Veeco Instruments (US), manufacturer of production equipment for the LED industry. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio construction

(5) Source: World Business Council for Sustainable Development (WBCSD), Report on the Energy Performance of Buildings, April 2007 (6) "Le marché du BTP en Chine" published by UBIFRANCE in 2008

23

2 questions for...

Clotilde Basselier Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

The eco-efficient products sold by companies in which you could invest obviously contribute to the reduction of greenhouse gas emissions, but at a higher price. Are consumers ready to make that investment?

Eco-efficient products are generally more expensive to buy, but the reverse is true when it comes to the cost of use.

Take the example of incandescent light bulbs. According to the European directive of 2005, these bulbs are to be phased out in favor of low-voltage bulbs (by the end of 2012). A low-voltage bulb consumes on average five times less energy than a conventional bulb and apparently lasts six to ten times longer. It is true that low-energy bulbs will be five to eight times more expensive to buy than the previous bulbs, but they will enable the consumer to achieve savings over the life of the product (â‚Ź25 to â‚Ź50 per year according to the European Commission).

What types of eco-efficient lighting products will be available to the consumer?

Traditional filament bulbs will mainly be replaced by compact fluorescent lamps (CFL). This type of bulb saves energy but contains a small amount of mercury (5 mg per bulb). They therefore have to be processed by specialist toxic waste recycling companies. We are closely monitoring this aspect through one of our other subthemes: waste management. It shows the importance of adopting a multi-thematic approach to climate change‌ It is worth noting that there is an alternative to CFL bulbs, namely LED (lightemitting diode) technology. Compared to traditional bulbs, LED bulbs are 55% to 85% more efficient and contain no mercury. These LE D bulbs are currently 6 to 7 times more expensive than CFL bulbs, but are expected to become more competitive in 5 to 10 years time.

Passive buildings The notion of passive buildings or homes refers to an energy standard for buildings and is the term used to describe certain types of residential buildings. It consists in constructing energy-efficient buildings that are practically autonomous in terms of heating. These passive homes use only solar energy and metabolic energy (heat generated by the inhabitants and machinery) and better insulation. They are already widespread in Germany, Austria and Switzerland and are gradually appearing in the other European countries.

These techniques reduce energy consumption by 80-90%.

New ecological architectural concepts are being developed based on this approach.

For example, in Sweden, a passive complex located close to Stockholm station recovers the heat surplus / the exceeding heat from this public site to meet part of its heating requirement.

24

RE D U CTIO N OF GREEN HOUS E GAS EMISSION S

Energy substitution THE CHALLENGES Favoring fossil fuel that pollutes the least and developing alternative energy to reduce greenhouse gas emissions.

According to the International Energy Agency (IEA), global energy consumption is set to increase by 50% between 2004 and 2030 to support demographic and economic growth. Currently, 80% of global energy production comes from fossil energy(1) (oil, coal, gas).

Trend in global energy consumption (in megatonnes of oil equivalent) 3150

n Economic development is currently reliant upon the intensive use of fossil energy which is considered highly polluting.

2800 2450 2100

• Coal has particularly harmful environmental impacts. During combustion, the sulphur-containing fossil fuel produces sulphur dioxide (SO2). It turns into sulphuric acid by oxidation, which causes lung irritations and produces “acid rain”, which is known to have a harmful impact on forests.

1400 1050 700

• The combustion of coal, as in the case for oil and to a much lesser extent gas, emits nitrogen oxides (NOx) and in particular carbon dioxide (CO2).

350

Coal

Oil

Renewable energies and waste

05 20

00 20

95 19

90 19

85 19

80 19

75 19

19

71

0 Gas Electricity

Source: International Energy Agency, 2007

Key facts n 23 Gigatonnes per year: the quantity of CO2 produced by fossil fuels(2).

• 42% from oil • 40% from coal • Only 18% from gas n 25 à 30 %: the amount by which CO2 emissions from the combustion of natural gas are lower than from the combustion of oil products. This percentage rises to 50% if the comparison is between natural gas and coal(3). n 13,8 %: the proportion of total electricity production represented by nuclear energy. By way of comparison, wind energy represents 0.9% and biomass 1.1%(4).

n Two answers to this problem: focus on the least polluting fossil fuels and the development of alternative energies.

• Natural gas: this is the least polluting fossil energy. For an equivalent quantity of energy, natural gas combustion emits much less carbon dioxide than oil or coal. This source emits hardly any sulphur oxide, solid particles or unburned residues. The fact that natural gas can be liquefied is an advantage, making it a flexible energy source prone to maritime transport and storage. Gas can be transported in underground pipelines, thereby avoiding road transport and limiting the impact on the landscape. LNG (liquefied natural gas) transported by LNG carriers overcomes geopolitical constraints. Moreover, gas provides an alternative to nuclear power, which several countries have decided to abandon since the disaster at the Fukushima nuclear power plant in Japan.

• Nuclear energy: nuclear power is going to play a "reduced role" in some countries following the Fukushima accident. But the main implications are a dramatic increase in safety requirements for existing nuclear power stations, as well as new and tougher specifications for the extension of the life of these plants. With respect to new construction projects, regulators are giving themselves the time to incorporate the lessons driven home by Fukushima. New projects are expected to be delayed, affecting the nuclear industry worldwide, in particular in China and the United Kingdom, which are firmly committed to nuclear energy.

• Renewable energies (solar, wind, geothermal, biomass and biogas): the accident at the Fukushima nuclear power station has given renewed impetus to research and development in renewable energy and electricity storage technologies. Renewable energy sources emit less CO2 than fossil fuels and are promising in terms of development. They currently account for less than 4% of global energy production. Locally, they are benefiting from generous subsidies to promote their development.

(1) Source: International Energy Agency, World Energy Outlook 2005. (2) Source: Encyclo Ecolo - The portal for sustainable development and responsible consumption, "Le CO2, dioxyde de carbone, un gaz à effet de serre planétaire" [CO2, carbon dioxide, a global greenhouse gas], September 2009. (3) Source: Magazine alternatives no. 9, "Le gaz, atouts et questions" [Natural

gas, advantages and questions], 3rd quarter 2005. (4) Source: French observatory of renewable energies, "La production d’électricité d’origine renouvelable dans le monde, collection chiffres et statistiques 2008" [Electricity production from renewable sources around the world, 2008 figures and statistics collection], tenth survey, edition.

25

Re duct io n O F GREEN H O U SE GAS EMI SS IO NS

Energy substitution INVESTMENT OPPORTUNITIES At the heart of the climate change issue, the shift in the energy mix towards the use of the lesser polluting energies, such as natural gas and alternative energies, opens up a wide range of investment opportunities. n Activities associated with the development of natural gas: - Public electricity and gas distribution services - Natural gas suppliers: producers, gas pipelines, etc.

- Companies engaged in maritime transport of liquefied natural gas (LNG). n All companies producing alternative energies or offering innovative technologies in this field: - Wind energy (onshore, offshore, etc.).

- Solar energy (photovoltaic, thermal, etc.).

- Water-based energy (wave power, kinetic energy, tidal power, ocean thermal energy, etc.).

- Geothermal (energy from the surface or deep layers of the Earth).

- Biomass (biogas, wood, new-generation biofuels, etc.).

We favor operators in the energy sector which have proven technological expertise and a strong position in their market.

Examples of companies*: • Trina Solar (China), manufacturer of photovoltaic products, modules and solar panels.

• Enagas (Spain), long-distance gas transmission network to promote the development of combined cycle plants.

•T erna SPA (Italy), transmission in the high tension and very high tension network, meeting the growing need for connections of new types of energy (wind, solar, etc.).

• BG Group (UK), integrated gas company with a dual focus on exploration and production and liquefied natural gas (LNG).

• Shanghai Electric (China): manufactures power generation facilities (thermal power plants) and transmission and distribution equipment (T&D) *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(6) Source: « Barack Obama and Joe Biden: New Energy For America », 2009.

26

2 questions for...

Suzanne Senellart Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management How do you factor in the intrinsic risks of the nuclear industry? What are the direct consequences of the Fukushima disaster on asset management?

From the outset we had established very stringent requirements regarding the selectivity of our investments in nuclear power, based on a comprehensive analysis of nuclear safety standards and validated by the Scientific Committee.

In fact the fund's direct exposure to nuclear power was limited to a single player. However, the nuclear disaster in Japan shows how vulnerable facilities are in case of extreme weather events. In its meeting on 5 April 2011, the Scientific Committee called for tighter selection criteria in the nuclear value chain. Considering what is at stake when one talks about the reduction of greenhouse gas (GHG) emissions, the Scientific Committee recommends industrial sectors that promote technological innovation in reducing energy consumption and developing renewable energy sources. Our position has evolved toward excluding from our portfolios power companies whose production is primarily nuclear and whose development strategy focuses on nuclear energy. Management may nevertheless continue to invest in energy companies whose production includes a marginal share of nuclear power generation, but whose development strategy is turned toward clean power generation technologies.

What might be the implications of the German decision to stop using nuclear energy in 2022?

Germany was the first major industrial power to choose to close its 17 nuclear reactors by 2022. This is a reversal compared to the extension of the working life of nuclear power stations voted in late 2010. The impact is already evident in the uptrend in electricity prices. This radical decision should also change the equation in terms of GHG emissions, and is in effect giving a renewed boost to the race for energy savings and alternative options. The "energy package" includes emblematic accompanying measures - subsidies for renewable energy sources, reinvigoration of research budgets, subsidies for building insulation and investments in communication and interconnection networks. If Germany meets this challenge, it will have achieved a great step forward.

Government initiatives in favor of clean energies There is an urgent need to develop alternatives to fossil energies, and most governments have made such provision in the measures taken to reduce their greenhouse gas emissions. Europe, for example, has adopted an ambitious energy plan: not only are greenhouse gas emissions set to be reduced by 20% by 2020, but renewable energies should also account for 20% of total energy consumption in Europe. The United States aims to have 10% of its electricity generated by renewable energies by 2012 and 25% by 2025. China has a target of 10% by 2020.

While the reduction of greenhouse gas emissions largely involves the development of renewable energies, nuclear energy is also an essential solution that is often included in the climate section of government plans. For example, the program put forward by Barack Obama and Joe Biden in the presidential election was explicit: “Nuclear power represents more than 70% of our non-carbon generated electricity. It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option.�(6) The UK authorities are following the same path and have set out their aim, in the Energy Review, of reviving nuclear electricity production by building new plants. The Fukushima accident has not, as of today, called into question the UK nuclear energy programme.

27

RE D U CTIO N OF GREEN HOUS E GAS EMISSION S

Modernization of electrical installations

THE CHALLENGES

Improving energy conservation in electricital plants and networks to optimize the production and distribution of energy and thereby reduce greenhouse gas emissions.

US policy on carbon emission reduction (2010 – 2030)

Requirement for new energy capacity in the US based on various scenarios for implementation of energy efficiency programs (clean energies, energy efficiency, etc...)

Nuclear energy

Combined cycle

Renewable energies

GW

250 Energie nucléaire 200

214 GW

Coal

Combustion turbines Cycle combiné

Charbon

- 48%

• New energy generation technologies are being developed on the one hand to improve the efficiency of plants and on the other hand to reduce their greenhouse gas emissions, such as: - gas turbine combined cycle (GTCC); - pressurized pulverized combustion (PPC);

133 GW

111GW

100

- fluidized bed combustion with partial gasification (second generation); - externally fired combined cycle (EFCC); - or gas turbine combined cycle (GTCC or GCC) with a high-temperature fuel cell and combinations of coal gasification.

50 0

n Moving towards more efficient and less polluting electricity plants

- integrated gasification combined cycle (IGCC);

- 38% 150

The energy sector, which is largely responsible for greenhouse gas emissions, is directly involved in measuring and controlling the environmental impacts. In addition to relying upon clean energy, a reduction in greenhouse gas emissions inevitably involves eco-efficient electrical installations for generation, transmission or at the infrastructure level.

Base senario

Realistic senario

Optimistic senario

Source: “Transforming America’s Power Industry: The Investment Challenge 2010-2030.”, Fondation Edison, novembre 2008.

Key facts n $150 billion: the annual cost of power cuts in the United States, around $500 per person(1). n 76 million: the number of smart meters around the world. This figure is expected to double by 2013(2). n 10 million: the number of Europeans plunged into darkness in 2006 due to the obsolescence of the electricity grid(2).

• As well as improving the efficiency of plants, new technologies such as the capture and geological sequestration of CO2 (cf. Focus) are becoming essential in mitigating emissions from the most polluting energies such as coal.

• Existing plants are being modernized to improve their reliability and extend their service life: rebuilding the boiler and ancillary equipment, replacing high- and medium-pressure equipment in the turbine, increasing the generator’s production capacity, installing new high-pressure burners, etc.

•R egulations and standards have been implemented in order to make energy production less polluting, such as the European Directive 2009/31/EC of 23 April 2009 on the geological storage of CO2. n Intelligent electricital networks and equipment for improved energy efficiency • The energy efficiency of electricital transmission and distribution infrastructure is a key element in the reduction of greenhouse gas emissions.

• High- and low-voltage networks need to be redesigned and restructured to limit energy loss, reduce electricity consumption and increase the sources of renewable energies.

• That is precisely what lies behind the emergence of “smart grids”, new networks relying on digital technologies to supply electricity more profitably and efficiently. Technological developments – offering bidirectional energy flow required to accommodate renewable energies – are under way and should be broadly deployed within a few years, provided major investments to finance electricital transmission grids are made.

• This link in the energy value chain represents a major challenge and governments are investing heavily in the renovation of their electricity grids.

(1) Source: Terra Eco, "Moderniser le réseau électrique : le défi américain" [Modernizing the Electricity Grid: the American Challenge], 2 November 2009.

(2) Source: ABI Research, 2009.

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Reduct i o n O F GREENH O U SE GAS EMI SS IO NS

Modernization of electrical installations INVESTMENT OPPORTUNITIES The modernization of electrical installations affects the entire energy value chain, from production to distribution via transmission, as well as users’ low- or high-voltage installations. n Companies offering innovative energy production infrastructures, such as combined cycle turbines, hydraulic turbines meeting new efficiency standards, CO2 capture and storage technologies, etc. nM anufacturers of modern power plant installations that help increase power generating capacity, efficiency and safety. nC ompanies offering eco-efficient energy transmission infrastructures: extra-high-, high- and medium-voltage electrical transmission cables, to accommodate the development of clean energy, innovative technologies which can reduce energy loss during transmission, innovative technologies to manage consumption during production peaks. The Fukushima nuclear accident enhances the attractiveness of technologies that reduce energy consumption. The decline in production from nuclear sources should thus be partially offset by investments in transmission and interconnection networks between the various production areas. nE lectrical equipment manufacturers: • Low-voltage equipment for buildings: programmable thermostats, energy managers, automatic switches, lighting timers, light threshold setting, home automation, etc.

• Medium- or high-voltage equipment for large-scale energy distribution in cities or industrial sites: high-voltage cables, electricity transmission and distribution networks, etc.

Examples of companies*: • Andritz (Austria), supplier of turbines and pumping systems for the renovation and construction of hydroelectric power plants around the world.

• Siemens (Germany), production of heating and ventilation systems, gas and wind turbines and production of equipment for energy transmission infrastructure.

• Legrand SA (France), manufacturer of anti-waste low-voltage electrical equipment products for use in residential and commercial buildings.

• ABB (Switzerland), manufacturer of equipment for electricity transmission and distribution networks. *These companies are eligible for Natixis Asset Management’s “Climate Change” thematic universe, but are not necessarily selected in the portfolio.

(3) Source: Alstom, 2009.

(4) Source: EU directive on the geological storage of CO2, 23 January 2008.

(5) Source: IFRI, "Le paquet énergie et climat du 23 janvier 2008 : un tournant pour l’Europe de l’énergie" [The Energy and Climate Package of 23 January 2008: a Turning Point for the Europe of Energy], May 2008.

29

2 questions for...

Suzanne Senellart Co-portfolio manager of Impact Funds Climate Change, Natixis Asset Management

Do you believe that new technologies for modernizing electricity plants will really produce concrete results?

New-generation combined cycle turbines include a mechanism for the reuse of steam, which appreciably improves the rate of conversion of fossil energies into electricity. Take for example new combined cycle electricity generation technologies which use natural gas (Gas Turbine Combined Cycle – GTCC).

On the one hand this technology enables carbon emissions to be reduced by around 50% compared to a coal-fired source. On the other hand it has a much higher energy efficiency rate. The new units installed on the basis of the latest standards can achieve conversion rates of around 59%, which represents a substantial improvement compared to older plants(3).

How do you see the future for coal-fired plants? Are they set to disappear?

Unfortunately it cannot be said that coal-fired plants are set to disappear, because fuel remains very necessary in order to meet growing energy needs, particularly in emerging economies such as China. Nevertheless, the efforts made to reduce pollution from energy generation should allow for a gradual reduction in the use of coal. That is already the case in Europe. The development of renewable energies, the more systematic use of natural gas and improvements in energy efficiency should pay off over the long term. The least polluting energies should become increasingly important, particularly in view of the ambitious targets set for renewable energies (20% by 2020 in Europe, 25% by 2025 in the United States, etc.).

The challenge with regard to energy generated from coal will be to reduce greenhouse gas emissions through improved energy efficiency and the development of new technologies such as CO2 capture and sequestration.

If this technology can be applied on a large scale, it will allow more intensive use of coal by limiting its impacts on the environment. But CCS remains experimental at present.

C02 capture and sequestration CO2 capture and sequestration (CCS), which is still at the experimental stage, involves trapping the carbon dioxide (CO2) emitted by power plants – particularly coal-fired plants – and storing it. This sequestration phase is particularly delicate, since it involves finding an appropriate geological site for the long-term storage of CO2. Although acceptance of underground storage sites among the public and local residents remains problematic, CCS would provide an effective solution to the problems of greenhouse gas emissions, over an acceptable time horizon, and particularly on a significant scale, since it can be deployed across all existing power plants. This technology therefore looks promising, since it will allow in particular a renewal of coal-fired generation. The authorities therefore wish to promote the development of these new technologies. For example, a standard will be adopted at European level by 2011 covering all major fossil fuel power plants(4). The European Council of March 2007 also asked the Commission to establish a mechanism to spur the construction of 12 demonstration sites for carbon sequestration and storage by 2015(5) and to issue recommendations on the strengthening of research and the technical, economic and regulatory framework for carbon sequestration and storage. Although these CCS technologies remain expensive, it is conceivable that they could be deployed on a large scale by 2020, provided that the development work on industrial installations is carried out rapidly.

30

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