Socially Responsible Investment Review

March 2012

Carbon Disclosure Project (CDP)

We believe we should encourage companies to limit their Greenhouse Gas Emissions (GHG) in order to mitigate climate change. CDP, the world’s largest investor collaboration, promotes this through its annual survey to which over 3,000 companies now respond. We attempt to engage with companies in which we invest that do not participate in the CDP survey encouraging them to do so in future. We contacted ITV, Go-Ahead Group and Aggreko which had previously completed the survey but declined to do so in 2011. We sought to learn why Halma did not take part having previously told us that it would. This year we will look to work with CIG to escalate engagement with high impact companies such as Cookson and Spirent that have not participated whilst encouraging them and others to reduce their GHG emissions further.

Israel/Palestine

Alsthom expects to complete the sale of its stake in the Jerusalem Light Rail Consortium later this year. Veolia remains committed to a sale, but has been blocked by the regulator. Engagement has also continued regarding two bus routes alleged to be unlawful. The situation is complicated by the company’s announced intention to sell its global transport business.

Executive Remuneration

Our approach to executive remuneration is based on the quality of disclosure, whether performance criteria stretch management and the potential for excess. Concerns with BSkyB centred on additional incentives to the Chief Executive during the abortive takeover bid by News Corporation, which appeared to be simply for ‘doing the job’ neither was it clear how its size was decided. We met HSBC’s global Head of Reward and challenged the overall levels of remuneration paid. However, we accepted that a strong and visible incentive structure aligning the interests of executives and shareholders had been established and that performance related pay is paid in deferred shares with the possibility of claw-back if appropriate. We also opposed several remuneration reports on the grounds performance or excess including those of Sage, Bellway, Lonmin and Compass Group.

Human trafficking

As we approach the London Olympics we continue to work with fellow global Church investors to promote greater efforts in preventing human trafficking. We co-signed a letter to hotel companies calling on them to sign the industry Tourism Code. A particularly encouraging response was received from Whitbread, which set out three key initiatives to raise awareness of human trafficking throughout its business and supply chain. A response from IHG was awaited, but there were signs of progress in relation to staff training at their hotels.

Extractives Industries

Safety continues to be a challenging issue for mining and oil companies, particularly where deep level mining takes place. During the quarter we met with Anglo American, BHP Billiton, BP and Royal Dutch Shell to discuss their health and safety performance as well as sustainability. BP continues to implement lessons learned from the Gulf of Mexico disaster. Our discussions with Shell focused on their Nigerian operations, where extensive and highly organised theft from pipelines is a major obstacle to their attempts to reduce the environmental impact of their activities.

Caste Discrimination Policy

Following advice from the Church of North India, our Caste Discrimination Policy has been amended. The terms used now refer to all those potentially subject to discrimination, including Christians and all indigenous tribes. We use the Policy as a tool to engage with businesses operating in territories where caste discrimination is a reality. The amended statement is available on our website.

Water Scarcity

Recognising that water scarcity is becoming an important issue for many businesses, we became signatories to the CDP Water Disclosure Project, which encourages companies to report on their water use. The impact on food and beverage companies will be particularly high given the large quantities of water used in production. It was therefore encouraging that when we met Nestlé at a recent investor briefing it described various initiatives that were being implementing world-wide to reduce their water use and increase recycling, working in partnership with local communities.

Corporate governance

At our meeting with BSkyB we questioned the composition of the board composition and in light of the phone-hacking scandal at News International, opposed the re-election of James Murdoch as Chairman. We note that he has since resigned. Ahead of the 2012 AGM season we co-led a review of the CIG voting template. One change related to boardroom diversity. Where a company has not outlined how it will address this issue we will now abstain on the election of the director who chairs the nomination committee.

Living Wage

We continue to view the adoption of the Living Wage as a benchmark standard and urged Tesco to consider becoming a Living Wage employer in the UK. The company argues that its total employee package compares favourably with its peers and exceeds the Living Wage when benefits and a career average pension scheme are taken into account. We continue to view the adoption of the Living Wage as a benchmark standard for industry.