Socially Responsible Investment Review

March 2014

Climate Change

Engagement on climate change continues to be a major part of our work. Through the Church Investors Group (CIG), the Institutional Investor Group on Climate Change, and the Aiming for A project, we are encouraging companies to do more to take account of climate change by both disclosing and reducing emissions. In addition, we are beginning to implement our new policy, Climate Change: Implications for Electricity Generation. This supplements our longstanding Climate Change policy and will help us to focus on an important group of companies which generate energy and emit greenhouse gases. We were also co-signatories of a letter calling on the Government to include 2030 decarbonisation targets in the Energy Bill.

We continue to engage on the issues raised by the Bright Now campaign for churches to divest from fossil fuel companies. This included helping to draft and signing the CIG Position Statement on Climate Change, which details work done by churches in this area. Together with the CIG briefing paper, Framing the Debate. Close attention was given to the resolution approved by the Church of England General Synod seeking a review of investment policy in the light of climate change. This fell short of a call for divestment, although we noted that Quakers in Britain agreed to move towards divestment. Engagement with companies continues on carbon emissions both directly and through the successful CIG 'laggards' initiative.

Royal Dutch Shell

Shell is a good example of how we engage with an integrated oil company on the many ethical issues that arise, including tar sands, oil spillages and operations in challenging areas such as Nigeria and the Arctic. Recently we took part in a field trip to their operations in China. This enabled us to see the impact of gas exploration and production operations, on local communities and the environment. We also wanted to understand how Shell operates in China, which involves a requirement to do so through joint ventures with state owned companies and the need to develop reserves in areas of relatively high population density. We viewed drilling and fracking sites as well as talking to villagers who lived near an exploration rig. We also took the lead in engaging with Shell for the Aiming for A initiative.

Pornography

We met with Vodafone to discuss the changing landscape on access to pornographic content. We were pleased to note that: strong content controls are in place; no 'adult content' is offered by Vodafone on the 'smart' phone platform; and the only remaining exposure is via the non-'smart' enabled legacy product, Vodafone Live. They had also developed a Guardian App to enable parents to block children accessing inappropriate internet content on the phones. Although this is available on all Android devices, Apple had so far refused to follow suit. Following our meeting, Vodafone confirmed that all promotional pages on Vodafone Live! linked to pornography had been removed and no links to 18-rated content on the portal now existed.

Living Wage

A company's decision to pay the Living Wage can make a material difference to many employees. Therefore, following further encouragement from our engagement on the Living Wage with ITV, Pearson and Wolseley, we have been working with Share Action to identify new targets. Consequently, we will not only approach FTSE 100 companies Bunzl, Rexam and Smith & Nephew, but will extend our work to mid-cap leisure and service sector companies, Cineworld and Restaurant Group.

CDP Water survey

Water scarcity represents a serious and growing challenge for business, not least those with global supply chains. We are a signatory to the annual CDP Water survey that targets over 1,000 of the world's largest companies impacted by water risk. Together, these companies account for 11bn mega litres of water extraction per annum. The overriding survey finding is that water risk is both a current issue and becoming more acute. Consequently, we will commence engagement on water with high impact companies, beginning with SSE and Tullow Oil. It was noticeable that Tesco did not respond to the CDP survey despite identifying water as a key issue and having already developed a strategy. The other FTSE 100 food retailers, J Sainsbury and Morrison, did not form part of the survey universe, and further research will be necessary before we decide how to engage with the sector.

Corporate governance

We have worked with our UK proxy voting service provider, PIRC, to develop a new CIG UK voting template following changes to remuneration voting rules. We expect voting outcomes under the new template to be similar to previous years, focusing on performance and excessive pay. A defeat of either a binding vote on pay policy or a take-note vote on the remuneration report will require new pay policy proposals to be brought to shareholders. Plans have been announced by some banks including Barclays, RBS and HSBC to circumvent European Union bonus caps limiting bonuses to 100% salary (or 200% with shareholder approval) by introducing 'fixed rate allowances'. We do not regard this to be appropriate, which will be reflected in our votes and engagement. During the very quiet first quarter we opposed the remuneration policies of Compass Group, Sage Group, WH Smith, TUI Travel and Aberdeen Asset Management. The TUI Travel long-term incentive scheme was also opposed.

The latest version of our Statement of Compliance with the UK Stewardship Code can be seen on our website.

Ecumenical working

In January our Chief Executive, Bill Seddon became Chair of CIG. It held a successful conference with over 60 delegates from UK and international faith investors. The main subject was climate change with the keynote address given by Lord Deben (John Gummer), Chairman, UK Committee on Climate Change, whilst BP presented their global energy outlook to 2035. Other topics included modern slavery, ethics in business and impact investing.