Socially Responsible Investment Review

December 2017

Farm animal welfare

We have launched a new policy on farm animal welfare. The policy outlines how we will engage with food producers and processors, hospitality, and food retail companies that use animal related products. We have been a long-standing supporter of the Business Benchmark on Farm Animal Welfare (BBFAW) and our policy supports strong corporate disclosure around the way farm animal welfare issues are managed. We have published the policy alongside a position paper on our website. During the quarter we became an investor signatory to a global investor statement on antibiotic use facilitated by FAIRR (Farm Animal Investment Risk and Return).

Climate change

Our project to re-evaluate fossil fuel companies continues apace. We already exclude a number of such companies on climate change grounds under our three existing climate change policies. Where we have holdings in the sector we engage extensively. Our new project, accelerated after a Methodist Conference motion in the summer, will examine how well companies are aligned with the Paris Agreement. The agreement aims at keeping the average temperature rise to “well below 2C”.

The task is not straightforward and while we are collaborating with other investors where we can, we have not encountered any other investment institution undertaking the same analysis. For temperature rises to be limited, levels of coal, oil and gas consumption will have to be considerably lower than today. However, most scenarios outline a period of transition and some fossil fuels will still be used.

We have reviewed a range of climate change scenarios and more closely examined a shortlist of scenarios which have particular relevance. The next step will be to develop a methodology for assessing companies. Our first take on this will be discussed by JACEI in the first quarter of 2018.

We continue to keep abreast of industry thinking, especially through our membership of the IIGCC and the Transition Pathway Initiative.

We attended a presentation by Shell in November, which emphasised the management’s interest in building a portfolio of technologies including biofuels and hydrogen. Shell confirmed it will progressively provide more information on its transition to a low carbon future and it has begun to produce “Scope 3” information on the use of its products.

Labour rights

During the quarter we became signatory members of the Workplace Disclosure Initiative. Investors have often been slow to recognise responsible investment issues associated with the workplace such as the growing pressure from low wages, the gig economy and automation. We have long engaged with business on the adoption of the Living Wage and this new initiative, led by Share Action, aims to secure improved disclosure on workforce reporting, modelled on initiatives such as the CDP. The Workforce Disclosure Initiative will target the FTSE50 and seek to enhance investor insight into a range of employment issues.

Human rights and conflict

The deteriorating situation in Rakhine State, Burma, has resulted in very significant human rights violations carried out against the Rohingya minority. We engaged with Telenor as the contracted company responsible for rolling out the mobile telecom network across Burma to understand the impact of the conflict on its operations and how it has responded. The company has provided comprehensive information on its human rights due diligence and confirmed it has no agreements “commercial or otherwise” with the Burmese military.

Water

In November we engaged with 19 selected UK and European companies on water issues on behalf of the Church Investors Group (CIG). We have begun to assess responses to this engagement as we seek to improve companies’ risk management and measuring.

Tax

We participated in a roundtable on tax convened by the Joint Public Issues Team of the Methodist Church, United Reformed Church, and Baptist Union in October that brought together delegates from interested stakeholders including the Methodist Tax Justice Network. We are working on formalising a policy on tax. Tax is a particularly complex and technical issue for investors to engage with and the Policy will set out a methodology for effective engagement on transparency and disclosure.

Extractives industries

We continue to be active participants in the Mining Faith Reflections Initiative and attended a roundtable meeting held in November at Lambeth Palace. We value the role we play in helping to bring together the three facilitating denominations; Roman Catholic, Church of England and Methodist, and help them witness to the need for mining companies to pursue the common good.

Corporate governance & engagement

We launched a Screening and Engagement Policy during the quarter. This sets out, in high level terms, our overall approach to assessing and engaging with companies. It explains why we regard engagement as important, the circumstances in which engagement is pursued, and how we engage both collaboratively and alone. The Policy is designed to help clients better understand our responsible investment process.

Together with our CIG partners, we agreed a refreshed voting template ready for the 2018 proxy voting season. This seeks to reflect emerging best practice and from 2018 will tighten voting criteria further on executive pay, gender diversity in boards, and climate change.

The final quarter is traditionally quiet for proxy voting in the UK and Europe; we voted at nine UK meetings and 18 meetings in Europe. In the UK we opposed or abstained 19% of resolutions including eight remuneration reports and policies. In Europe we opposed 6% of resolutions.