As an investor

Investment policy

3i has a portfolio of over 1,000 investments in businesses across Europe, Asia and the US. As an investor, corporate governance is a priority and account is taken of environmental, ethical and social issues when making investment decisions. 3i believes it is important to invest in companies whose owners and managers act responsibly on environmental, ethical and social matters.

3i aims to invest in companies which:

• respect human rights;
• comply with current environmental, ethical and social legislation;
• have proposals to address defined future legislation; and
• seek to comply with their industry standards and best practice.

3i recognises that the most significant risks to 3i's short-term and long-term value from environmental, ethical and social matters arise from its investment business. If a company in which 3i has an investment acts irresponsibly on corporate responsibility issues, this may affect the monetary value of that investment and, as a shareholder in that company, raise reputational issues for 3i.

Although 3i does not have operational control over the companies in which it invests, it does have the opportunity to influence the behaviour of these businesses and encourages the development and adoption of good corporate governance. This is achieved through the training of investment staff and non-executive Directors who are appointed to the boards of investee companies and the raising of awareness within investee companies of social, environmental and ethical issues. 3i is also active in promoting good governance in the private equity industry through the provision of tutors for courses run by the BVCA and the EVCA.

Investment procedures

3i has policies and procedures to reduce the risks of 3i investing in businesses which operate in an environmentally, ethically or socially unacceptable manner. Details of these policies and procedures may be found on 3i's website at www.3igroup.com/shareholders/cr/procedures. When reviewing businesses for potential investment, investment executives are required to consider whether any corporate responsibility risks arise and, if any risks are identified, to follow 3i's corporate responsibility investment procedures. Depending on the nature of the risk identified and its seriousness, a condition precedent or post completion undertaking requiring that the situation be remedied may be required from the investee company or its management. Alternatively, it may be decided not to proceed with the investment.

Over the year more than 1,600 potential investments were considered and 58 new investments were completed. Over 1,500 potential investments did not proceed for financial or commercial reasons (including, in some cases, for social, ethical or environmental considerations).

Where, after an investment has been made, 3i becomes aware that an investee company is not operating in an acceptable way, 3i will seek to use its influence to encourage improvement. Where that is not possible, 3i will seek to divest itself of the investment.

During the year, processes were put in place to monitor more closely the number of potential investments in respect of which detailed due diligence was undertaken, and the number of investments in the portfolio reviewed as part of 3i's portfolio management processes, where environmental, social or ethical issues were identified, the nature of the issues identified and action taken as a result. A summary of the results of this monitoring for the year to 31 March 2007 will be reported in the 2007 Corporate responsibility report.

Relationship management

3i's key relationships are with the companies in which it invests, together with the intermediaries, advisers and consultants used to facilitate investment and portfolio management. 3i actively engages with these groups to benchmark its performance and improve its investment procedures and skills.

During the year to 31 March 2006, market perception studies were undertaken in the UK, France, Germany, Spain and Sweden. As part of these studies, interviews were conducted with companies in which 3i has invested, potential companies for investment and with intermediaries and advisers with whom 3i deals as part of the investment process. The results of these studies have been used to refine the way 3i interfaces with the companies in which it invests and the markets in which it operates, and to develop further the training of 3i's investment executives.