Socially Responsible Investment Review

December 2018

Climate change

We have been engaging in considerable work to evaluate the extent to which the operations of fossil fuel producers are consistent with the Paris accord. This involves five pieces of analysis: companies’ current asset mix, capital expenditure plans, climate strategy & governance, transition plan and direct emissions. JACEI reviewed the first fruits of this work in December when it considered papers on Asset Mix Methodology and assessments of companies’ asset mix. Further work will be presented to JACEI in the spring.

The IPCC produced a report on limiting climate change to 1.5 °C and this will feed into our work, as will our involvement with IIGCC, TPI, Carbon Tracker and the CA100+ initiative during the quarter. Our Montréal Pledge disclosure for 2018 has been published online.

We signed a collaborative investor statement to support a Just Transition on Climate Change.

We wrote to the large Canadian banks to which we lend through our Deposit Fund: Bank of Montréal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto Dominion. The engagement was as a result of analysis which showed that these banks lent substantial amounts to the tar sands industry. We have asked each company to join the TCFD initiative, and to explain how their tar sands finances is consistent with their climate change policies.

Extractive industries

We attended a sustainability day hosted by BHP Billiton led by senior personnel. The company is progressing compensation and resettlement following the Samarco disaster, and updates on climate change emissions targets and health & safety were discussed.

We wrote to Nutrien which sources phosphate from disputed Western Sahara, and has thus been excluded from investment. The company was able to provide assurances that following a review, the company would be self-sufficient in North American phosphate from early 2019, thereby ceasing to source from Western Sahara.

Plastic

We contacted AB Foods, Tesco and Ted Baker regarding the presence of micro-fibres in clothing ranges. Tesco replied encouragingly, stating they are working with suppliers to understand the science and have part-funded a pan-industry initiative ‘Industry Action on Micro-fibres’ to drive a coordinated response. As part of our ongoing engagement with a range of companies on plastics, we are now focussing on the risks arising from micro-fibres and their long-term impact on the marine environment.

Living Wage

We engaged with Vodafone Group to encourage them to become an accredited Living Wage employer. We were disappointed that they declined, despite stating they are committed to paying all employees the Living Wage. Accreditation requires full time employees and third party contractors to be paid the voluntary enhanced rate, and Vodafone expressed an inability to ‘track’ third party reward structures. We are now working with Share Action and the Living Wage Foundation to re-engage Vodafone in discussion.

Worker rights

Ted Baker, a clothing retailer, faced allegations of inappropriate behaviour in the workplace. The company has appointed a committee of non-executive directors to review the allegations as well as an external law firm to lead an inquiry. We wrote to the Chairman to express our concern, ask when the inquiry was expected to be concluded, and to call for a commitment to implement any recommendations promptly.

Farm animal welfare

We are signatory supporters to the Business Benchmark on Farm Animal Welfare (BBFAW) which ranks food manufacturing and processing companies for welfare risk. Cranswick has been ranked as a Tier I leader, and we wrote to the company welcoming its strong stance on animal welfare and asking the company to support a new Global Coalition for Animal Welfare spearheaded by Nestlé and Unilever. A response is awaited.

Business ethics

We divested our shares in Danske Bank following the allegations that it allowed €200bn of potentially laundered money flow through its Estonian branch, and removed the bank from the list of banks to which we will lend through our Deposit Fund. The scandal resulted in both the Chair and Chief Executive being dismissed. We reviewed the currently available information about the scandal, its systemic nature and the alleged culpability of senior executives and decided to divest from the Bank as a shareholder and to cease its suitability as an approved lender.

Corporate governance & executive remuneration

The December quarter was very quiet. During the quarter we voted at four UK meetings opposing five resolutions; three against the re-election of directors and two against executive pay: MJ Gleeson and AB Foods. We wrote to Eco Animal Health regarding the company’s irregular governance arrangements and were pleased to learn at a subsequent meeting with the Executive Chair, that the Board had agreed moves to improve governance practice.

In Europe, we voted at seven meetings, and took action in 14% of cases. Re-election of directors and opposing the Financial Report & Accounts on climate change grounds were the main issues of contention.

In 2018 as a whole, we voted in total at 93 meetings in the UK comprising 1,537 resolutions, opposing or abstaining 17% of proposals. Remuneration accounted for 30% of all action taken in the UK and the re-election of directors 56%. Of 96 remuneration proposals (reports and policies) in 2018, we opposed or abstained 86%. In Europe we voted at 234 meetings comprising 3,785 resolutions. We opposed or abstained 21% of all proposals, with the re-election of directors accounting for 37% of action, and executive pay 42%. Just under 60% of all remuneration proposals in Europe were opposed.

Our full voting reports are available on request, whilst a summary is published online.