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Socially Responsible Investment Review

June 2013

Human rights and conflict

Many companies operate in areas where there is conflict and where human rights are at risk. In these circumstances they can make a positive impact but also have great responsibilities. We regularly engage with such companies and following discussions by JACEI we have now adopted a formal policy on the subject. It sets out the context for corporate behaviour in the area of human rights and conflict, and outlines when we may need to engage. It also suggests specific circumstances in which divestment might be appropriate. The policy is published on our website, where it is accompanied by a position paper outlining the issues in more detail.

Climate change - 'Aiming for A'

Our investment approach towards climate change is driven by the Methodist Church's position, as interpreted in our Policy Statement (see our website). We therefore continue to promote better disclosure of greenhouse gas emissions by companies. This has led us to participate, with other institutional investors, in the new 'Aiming for A' project which seeks to encourage better performance in controlling emissions. We are taking the lead in engaging with Royal Dutch Shell, but are also involved with Centrica, who we met during the quarter and received a positive response.

Climate change - carbon footprints

Our policy also leads us to analyse the carbon footprint of our UK portfolios, using the services of Trucost and EIRIS. Carbon footprinting is not an exact science, hence our interest in seeking two assessments from expert providers. Both analyses this year continued to suggest that the footprint of our portfolios were lower than that of the FTSE All Share Index.

Climate change - power generation

We are now extending our climate change work by looking at emissions from different types of fuel supply. The human race relies on power, often from fossil fuels. The burning of fossil fuels helps drive development but also contributes to global warming. Emissions intensity is different for different fuels. How we regard the generation of power is an important sustainable investment issue which raises ethical questions. We are working towards a policy on power generation and will publish a position paper and policy in the next few months.

Gambling

We regard investment in companies heavily exposed to gambling activities as inconsistent with our responsible and sustainable investment approach. However, we have been re-examining the related ethical concerns in the light of increased opportunities to gamble in society. By the autumn we hope to have finalised a Position Paper and developed a Policy Statement. These will still lead us to avoid investment in companies with significant exposure to gambling activities, but in addition provide a framework for engagement with companies where gambling exposure may be growing.

Living Wage

We continue to encourage companies to adopt the Living Wage. Land Securities not only confirmed that all directly employed staff are paid the Living Wage but also committed to do so for all service partner teams. This cannot be promised in relation to their managed retail portfolio at this time, consequently they will not seek accreditation. The response from Whitbread was less encouraging indicating that to implement the Living Wage would make them uncompetitive, putting at risk their investment in employee skills and training. Engagement will continue.

Extractive industries

We took part in investor briefings on sustainability held by Anglo American, Rio Tinto, and Royal Dutch Shell. We met activists to hear their concerns about Rio Tinto mining operations in the US, Mongolia, and Colombia. Such meetings provide a helpful context for later engagement. We also met with Glencore Xstrata, focusing particularly on health and safety issues.

Retail supply chain & Bangladesh

The collapse of the Rana Plaza building in Bangladesh with heavy loss of life was shocking and concerning. The specific cause of the disaster was poor construction, but it highlighted longstanding concerns about the apparel supply chain. Associated British Foods, owner of Primark, had supply contracts with companies operating at Rana Plaza. We are meeting with the company to learn more fully how it audits and assesses overseas suppliers for poor or dangerous working practices, and how it promotes better standards. Moves to agreed standards in working conditions by clothing retailers are welcome, but a greater sense of urgency is required if improvements are to result.

Regulatory penalties

We hosted a briefing by GSK on corporate responsibility issues for the Church Investors Group (CIG). GSK was challenged over its disappointing legacy of regulatory fines. We were assured that new policies and processes had been put in place, especially in the US where breaches had been found, and that the company was confident that sales teams could no longer behave in ways incompatible with company ethics. This assertion must now be challenged following allegations of corruption in China. Energy supplier SSE was given a substantial fine by the regulator OFGEM, following their discovery of management failures at every stage of the sales process. We reviewed the OFGEM statement and the company's response and were broadly satisfied that the company had moved swiftly to root out poor practice.

Corporate Governance

Our robust approach towards excessive remuneration continues and we opposed many UK remuneration reports during the busy second quarter. We are taking action against directors where there is evidence of poor boardroom diversity or inadequate carbon disclosuret. Since 1 May our European portfolio has been voted by ISS against our agreed voting policy. Details can be found on the CFB website.

How we work

We work with others where we can, to share knowledge and maximise our engagement efforts. We play a major role in the CIG, and are also active in; the Institutional Investors Group on Climate Change; the UN Principles of Responsible Investment , and CDP. Our Service providers include EIRIS, PIRC, ISS, and Trucost.

We welcome input from our clients and are happy to provide more detailed information if requested. Please contact us through Bill Lane, our client relationship manager