Socially Responsible Investment Review

December 2015

Climate Change

The world took further steps towards tackling climate change at the COP21 Paris talks in December. However, much remains to be done if the average global temperature rise is to be limited to no more than 2C. Investors have an important role in encouraging companies to take the threat of climate change seriously. It is an example of how investment and ethics need to be integrated, which is at the core of our approach.

We have been implementing our new climate change policy relating to different fuel types. This resulted in the sale of two oil holdings, Tullow Oil and Premier Oil, with a further six excluded, on ethical grounds as their main business was the exploration for and development of new sources of fossil fuel. We also sold a holding in the mining company Glencore because of its high exposure to coal, one of the worst emitters of greenhouse gases. We have since been in dialogue with Glencore about our decision. No further disinvestments have been required from our European portfolios.

We signed the Paris Pledge in the wake of the COP21 talks. The Pledge, an initiative of the French Government, harnesses the combined resources of non-state actors such as cities, regions, investors, business and NGOs to commit to achieving or exceeding the outcomes agreed in Paris.

We continue to be an active member of the successful 'Aiming for A' coalition. Once again, we are putting shareholder resolutions to company AGMs on climate change resilience, calling for detailed reporting on asset portfolio resilience, emissions management and low carbon alternatives. We are the lead investor engaging with Anglo American on behalf of the Coalition. Resolutions will also be put to the AGMs of Glencore and Rio Tinto.

Direct greenhouse gas emissions from buildings account for 17% of total such emissions in the UK, with housing responsible for 76% of that total. Government policy has shifted from a 'zero carbon' directive, to one where planned emissions reduction falls voluntarily to housebuilders. We found performance amongst housebuilders to be variable and in many cases unavailable. Amongst reporting companies, Berkeley Group had the highest proportion (54%) of homes built to 'sustainable' standards.

Extractive industries

BP provided performance updates on process safety, operational risk and strategic planning at a recent SRI day. BP is not developing carbon capture and storage technology and is pursuing energy efficiency as the main way it is addressing climate change. The tailings dam catastrophe in Brazil at the Vale-BHP Billiton Samarco mine resulted in multiple fatalities and considerable environmental destruction. We met with BHP Billiton for a detailed briefing. While we welcome the prompt response, focused on helping the community recover, we want to see evidence of lessons learned.

Living Wage

Since 2011, we have engaged with 19 companies about the adoption of the Living Wage, none of which had adopted or endorsed it at the time. Five are now fully accredited Living Wage employers, and one other is committed to achieving full accreditation. Other companies are very close to complying, with the proportion either accredited or very close amounting to almost half (47%) of the target group. The Chancellor's announcement of a new 'National Living Wage' may complicate the picture, but we will continue to work with ShareAction to engage with companies on adoption of the Living Wage, and particularly in urging companies not to age-restrict application of the new National Living Wage only to the over 25s as prescribed by Government.

Water

The World Economic Forum has named water as the number one challenge facing global economic development, and in 2016 we will be leading Church Investor Group engagement on water risk. We have written to 37 large UK companies assessed as being materially affected by potential water risk, either directly or through their supply chains, encouraging them to take part in the CDP water survey which presents a consistent methodology for assessing impact and risk. We have already had responses from SSE and M&S, which with all others received, will be analysed to assess what further work may be required.

Funeral Poverty

The cost of a funeral has risen dramatically over the past decade, and people on low incomes are finding it difficult to pay for the funeral of a loved one. The Church is increasingly becoming involved with funeral poverty given its central role in providing pastoral care during bereavement. The Church of England, Roman Catholic, and Methodist churches combined account for nearly half of all funerals carried out in England. We support the 'Fair Funerals Pledge' and asked Dignity, which arranges funerals and funeral plans, for its perspective. It assured us that it operates in a manner completely consistent with the 'Fair Funerals Pledge', training staff to ensure that fees and other costs are clearly explained.

Nestlé

We had our regular meeting with key personnel from Nestlé UK during the quarter. They provided updates on health & safety and on Nestlé's responsible cocoa and coffee plans. Nestlé has been at the forefront of companies refreshing products to support healthier lifestyles and we were given an update on progress, particularly regarding sugar reduction. Our meetings routinely cover Breast Milk Substitutes (BMS) and Nestlé due diligence. The company is still the only manufacturer to have been included in the Index as meeting the FTSE4Good BMS criteria and remains committed to the FTSE4Good BMS process.

Corporate Governance & Executive Remuneration

We voted at 15 UK company meetings in the quarter to 31 December, opposing or abstaining on 13% of all resolutions. This included 22 remuneration reports where pay was excessive or poorly structured. In Europe ex UK we voted at 17 meetings, opposing or abstaining 11% of resolutions. Our summary voting report is available online, and a more detailed report on request.