Socially Responsible Investment Review

December 2013

Climate change - power generation and fossil fuels

As we have applied our Climate Change policy over the years, we have sought to keep it relevant to developing thinking in the area. Recently, our focus has been on power generation. In a new Position Paper, we consider the Greenhouse Gas (GHG) emissions produced by different fuels and how government policy to reduce emissions may affect the power generation sector. Our new Policy Statement sets out the criteria for investment in the power generation sector, which include encouraging companies to: disclose overall emissions accurately and comprehensively; publish targets for limiting and reducing GHG emissions; and invest in new plant, consistent with the UK�s requirement to reduce GHG levels by 80% by 2050. The Policy also recognises that companies that build coal fired power stations in developed markets without carbon capture and storage are of particular concern.

With our Church Investors Group (CIG) partners we continue to assess the claims made by various campaigns that Resource companies are not taking sufficient regard of climate change. You can read the CIG position statement and briefing note on the CIG website.

Gambling

We adopted a policy on investment in gambling during the quarter. In our accompanying Position Paper we recognise significant changes to the industry since it was last reviewed with internet and off-shore gambling being the most notable developments. We continue to avoid investment in companies whose main business activity is gambling and gaming, spread betting, licensed gambling premises, the manufacture of gaming machines, betting platforms or associated software.

Extractive industries

We continue to evaluate Glencore Xstrata. Following the publication of its latest Sustainability Report we met with the company to address a variety of questions, in particular relating to health, safety and human rights. We also met with activists from Indonesia and Colombia in the run-up to the BHP Billiton AGM.

Living Wage

Our engagement on the Living Wage focused on Pearson, ITV and Wolseley. We were delighted to learn that the publishing company, Pearson, has become a fully accredited Living Wage employer, whilst ITV has made a public commitment to adopt the Living Wage for its own employees and is working with third-party service providers to implement the Living Wage for contractors working at ITV locations. Building merchant, Wolseley, told us that it is working to close the gap between its UK hourly pay rates and the Living Wage rates. We have commended all of these companies for their positive commitment to justice on pay. However, engagement with AstraZeneca has been less successful with the company stressing the challenges of introducing the Living Wage across all their operations.

Breast milk substitutes and Nestlé

We participated in a FTSE4Good workshop that brought together Nestlé, church representatives and NGOs. The results of the most recent FTSE4Good country verification audits, part of its requirement for admitting Nestlé into the index, were discussed. This was a very constructive meeting with progress continuing to be made. At present only Nestlé has successfully met the stringent criteria for inclusion in the Index, although Danone is close. Separately, the CIG has decided to engage with Danone to encourage it to make the necessary changes in order that it can meet the criteria to secure inclusion.

Corporate governance

Following a change made effective last October, UK investors are for the first time to have a binding vote on executive pay, which will empower them to require companies to think again on remuneration. Companies will present a binding resolution on pay policy every three years, but there will also be an annual vote to 'take note' of the latest remuneration report. We will continue to oppose excessive remuneration and in the fourth quarter we voted against many UK company remuneration reports, including those of BHP Billiton, BSkyB and Associated British Foods. Incentive plans were opposed at BHP Billiton and house-builder MJ Gleeson Group.

Ethical supply chain

Our engagement with companies regularly looks at supply chains, particularly in the apparel sector. However, we recently looked at a less high profile issue following alarming media reports of poor human rights practices on some tea plantations in Northern India. We raised this with Associated British Foods, owner of the Twining tea business, which noted that it channelled its tea buying activities through the Ethical Tea Partnership. Consequently we are examining the Partnership's scope and approach and will now engage with other manufacturers and retailers on tea sourcing.

Ecumenical working

The Church Investors Group, of which Bill Seddon, our Chief Executive, was recently elected Chair, held a successful meeting in November at which Professor John Kay gave the keynote address on responsible business. We continue to participate in collaborative events focused on responsible finance including the Blueprint for Better Business initiative which seeks to facilitate thinking around purpose and values of companies in an effort to encourage the adoption of higher moral principles in the conduct of business.

High interest lending

We have been increasingly concerned about the growth of high-interest lending and hope to complete a review of this issue later in the year. In addition, when analysing the mail order company, N. Brown we noted consumer credit forms a large proportion of its income and customers are charged what appear to be excessively high interest rates. Consequently, we have decided to exclude the company as a potential investment.