Skip Navigation

Socially Responsible Investment Review

March 2015

Climate change

Our analysis of the ethical merits of different fuels from a climate change perspective, coupled with advice from JACEI has resulted in a new position paper, Ethical implications for different fuels, and policy statement with the same title. The position paper looks at the theological context together with the perspective of Methodist and other church traditions. It also considers the relative impacts on climate change of different fuel sources including coal, oil, natural gas, nuclear and renewables. The resulting policy statement stresses the importance of engagement but concludes that exposure to companies heavily involved with coal and tar sands, particularly exploration and development, would be inconsistent with the Methodist Church position.

Engagement on climate change is a major part of our work. We have joined other Church Investors Group (CIG) members and Aiming for A project partners to co-file shareholder resolutions at this year's BP and Shell AGMs. These resolutions encourage more disclosure around portfolio resilience and future low-carbon strategies given the risks from climate change. As a result of careful engagement, the Boards of both companies have recommended that shareholders support the resolutions. We commend these decisions and will now be looking closely at how the companies intend to implement them.

Royal Dutch Shell

We met with Shell during the quarter to discuss a range of issues including the situation in Nigeria, health & safety, Arctic drilling, and North Sea platform decommissioning.

Mining: Ecumenical reflections process

Last year the CFB was instrumental in bringing together church leaders and mining chief executives to reflect on how mining can best serve the common good.

The event, hosted by the Archbishop of Canterbury and the President of Methodist Conference at Lambeth Palace last year, is being built upon. This year there will be a series of smaller meetings and local projects to take forward the thinking that has emerged so far. This significant initiative will be the subject of this year's JACEI leaflet, available in June.

We participated in the Anglo American SRI analysts' day and a meeting of the Extractives Industry Transparency Initiative (EITI), to which we are investor signatories.

Business Benchmark on Farm Animal Welfare

We are supporters of this new initiative that seeks to raise standards in farm animal welfare for companies in the food producing, processing and retailing & hospitality sectors. We supplied the forward for the 2014 Index report and will engage with Index laggards in due course.

Several companies in which we invest were ranked in the first or second tier for performance (out of six) including M&S, J Sainsbury and Unilever. Disappointingly, Compass Group's rating slipped into the second bottom band whilst AB Foods and Whitbread remain in the lowest tier. Although not included in the survey we have discussed the principles involved with Hilton Foods, as part of our regular financial reviews. It noted the good work that BBFAW is doing and told us it would consider how to support the initiative further.

Nestlé & breast milk substitutes (BMS)

We continue to engage with Nestlé on a range of issues, including its compliance with the WHO Code on the Marketing of Breast Milk Substitutes. We support the FTSE4Good process on BMS whereby companies that meet the criteria for inclusion in the Index submit themselves to 'in country' independent verification of their processes in 'high risk' countries. In January we were part of the annual workshop that brings together the company, NGO infant nutrition experts and church investors to discuss country findings. We were pleased to see continued progress and trust being built.

Corporate governance and executive remuneration

The first quarter of the year is normally quiet, preluding the main voting season that commences in April. During the period we voted at 26 UK meetings. Remuneration polices and reports were opposed at Aberdeen Asset Management, Compass Group and easyJet. Additionally, we opposed the remuneration report at Sage Group. Several long-term incentive plans were opposed where these were deemed to be either excessive or poorly linked to performance.

The 2015 proxy voting season is expected to revert to normal with few companies expected to put their remuneration policies to a vote as the legal requirement to consult shareholders via a binding vote is only every three years.

At last May's AGM of the luxury retailer Burberry, shareholders rejected the advisory report on remuneration, although the binding vote on pay policy was approved. We wrote to the company expressing our particular opposition to the award of a £440,000 allowance to the new CEO in addition to a £1.1m salary and discretionary shares valued at £7m. In its reply the company told us was disappointed by the vote on the remuneration report and having reflected on it believed the issue for shareholders had been the package structure rather than its size. We disagree, and expect to engage further prior to the 2015 AGM to ensure our concerns are relayed to the Remuneration Committee.

Proxy voting

It has long been our aspiration to have a single proxy voting template for church investors, executed by a single global provider. As we seek to work more closely with ecumenical partners, this would allow the churches to vote with one voice in areas of material concern such as executive pay or climate change. We were therefore delighted to agree a single approach to voting with the three Church of England national investment bodies and other Church investors. Consequently, ISS, our current European voting service provider, has now been appointed to vote our UK holdings. We expect our voting outcomes to be broadly similar to our past record, taking the same robust approach to excessive pay.