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Socially Responsible Investment Review

December 2014

Climate change

We have continued to implement our new policy: Climate Change: Implications for Electricity Generation. We identified the German generator E.ON and its UK equivalent SSE, as having higher than average industry emissions. Both companies were asked for information about their strategies to reduce emission levels. Subsequently E.ON announced it is to spin off its 'dirty' coal assets to concentrate on renewables. SSE provided a disappointing response, and further clarity will be sought via a meeting.

Engagement on climate change continues to be a major part of our work through the Church Investors Group (CIG), the Institutional Investor Group on Climate Change (IIGCC), and the Aiming for A project. The CFB is part of a church-led investor coalition that will submit shareholder resolutions at the 2015 BP and Shell AGMs. The resolutions will call for additional disclosure around investments given the risks to their businesses arising from climate change.

The CFB has published the portfolio carbon footprint of the UK Equity Fund for several years and so was pleased to sign the UNPRI backed Montreal Pledge which commits signatory investors to measure and publish portfolio carbon footprints.

We continue to consider the ethical implications of climate change for different fuel sources and expect to publish a policy on the relative investment merits of different fuel sources from a climate change perspective. The policy looks at coal, oil, gas, nuclear, biomass and renewables and the contribution each fuel source may make towards meeting the 80% cut in UK emissions by 2050.

Pharmaceuticals industry

The biennial report of the Access to Medicine Index was published in the quarter, and we were pleased to see GlaxoSmithKline continue to lead the Index. We expect to engage with AstraZeneca, whose performance was disappointing for a second successive report.

We met with the Chairman of GlaxoSmithKline, Sir Chris Gent, as part of the Church Investors Group regarding the company's corruption charges in China and the levy of a sizeable fine. He was able to provide more detail on the various enquiries, and assured us that management is focused on restoring trust and integrity.

Living wage

We started a further round of engagement with companies on the Living Wage. British Land and National Grid Group already pay more than the Living Wage to their own employees, though not to third party contractors. British Land is actively considering accreditation as a Living Wage employer, which we would commend. Less encouragingly, J Sainsbury does not 'recognise' the Living Wage, preferring to focus on improving national minimum wage levels over time. Smith & Nephew has confirmed to us that it is seeking accreditation that will include on-site contractors, which we welcomed.

Gambling

Research indicated ITV had begun to develop material revenues from gambling via its partnerships with gambling platforms and from programme sponsorship by gambling companies. We wished to understand the controls in place to protect vulnerable individuals or children from accessing gambling platforms via ITV. Following engagement, ITV demonstrated that it considerably exceeds minimum legal requirements, does not hold gambling licenses and has a specialist compliance team that monitors all content. We were moreover reassured that revenues from gambling related content are low and likely to plateau or decline over time.

CDP water survey

We continued our engagement with food retailers following the publication of the CDP Water Survey. Wm Morrison responded by stating that whilst water disclosure was of great importance, the collection of meaningful real-time data remained a challenge; they therefore concluded that detailed mapping of their water footprint was not 'readily achievable'. We expect to engage further on water during 2015.

Human rights and trafficking

Following disturbing reports from North East India, we met with Twinings Tea, a subsidiary of AB Foods, to understand the company's approach to managing potential human rights risks such as human trafficking and forced labour. Twinings has relationships with tea estates that in some cases go back a century or more, and works closely with owners on working conditions, although it does not own its own tea plantations. Twinings has audit teams which evaluate conditions on estates and these teams are trained to look for issues around human trafficking and forced labour. No cases of trafficking had been revealed to date, though poverty in the region remains a major issue.

We also supported partner investors in pressing the UK Government to improve the Modern Slavery Bill by including corporate supply chains within the draft legislation and an investor coalition lobbying EU institutions to bring EU policy in line with the US on conflict minerals corporate due diligence.

Corporate governance & executive remuneration

During the fourth quarter we voted at 21 UK meetings. We apply a rigorous approach to excessive executive pay and therefore opposed 10 remuneration reports and policies including Smiths Group, BSkyB, Wolseley and BHP Billiton. At two companies, MJ Gleeson and Hargreaves Lansdown, we also opposed members of the remuneration committee, as pay structure was deemed to be particularly poor. In 2014 we voted on 128 remuneration policies and reports in all, supporting just 11 or 9%.

Our European voting partner, ISS, continued to exercise proxy voting for our Europe-ex UK portfolio, voting at 17 meetings, where the main issues opposed included board elections and shareholder capital issues.