Socially Responsible Investment Review

September 2014

Ecumenical reflections on mining

We have been working to organise dialogue between mining companies and the church across different denominations. The work built on a project begun by the Pontifical Council for Justice and Peace and various mining companies, including especially Anglo American. This latest phase culminated in an Ecumenical Day of Reflection on mining in October. Hosted by the President of Methodist Conference and the Archbishop of Canterbury at Lambeth Palace, the Day of Reflection brought together church leaders and senior mining executives to discuss what makes a good mining company, in every respect. We wanted to explore how we can ensure mining can best contribute to the common good and help everyone affected lead fulfilled lives.

The project gave church participants opportunities to visit mines and the surrounding areas. The site visits helped improve understanding of the risks and challenges for both mining companies and communities. Participants talked to local church leaders and members of community groups. We visited a copper mine project in Chile and gold mines in Ghana. JACEI members also visited mining projects in Western Australia and South Africa. Our participation has greatly aided our understanding of mining companies from a responsible investment perspective. We continue to work with mining companies and church leaders and church investors around the world on this project.

Our regular engagement with mining companies continued. We met with Glencore to discuss progress on improving safety and sustainability performance. We attended annual meetings about sustainability with Anglo American, Glencore, and Rio Tinto.

Climate change

We are extending further our work on the investment implications of climate change, building on our longstanding climate change policy and on our new policy, Climate Change: Implications for Electricity Generation. Our focus will now turn to further consideration of the ethical implications of different fuel sources. We will look at coal, oil, gas, nuclear, biomass and renewables, with an emphasis on the contribution each fuel source may make towards meeting the 80% cut in UK emissions by 2050. An additional policy will be produced next year.

Meanwhile, we have been applying our Electricity Generation policy. The German utility company E.ON has a carbon intensity significantly higher than many of its peers. We asked the company for more details about plans to reduce its carbon impact. We made the same request of SSE, a UK electricity generator. We also met with Centrica, working within the 'Aiming for A' investor coalition, to discuss its targets for future carbon emissions.

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 (IIGCC), and the Aiming for A project. We signed the 2014 IIGCC Global Investor Statement on Climate Change. We complimented Thomas Cook Group and Morgan Sindall Group on their progress reducing climate impact and received replies with further information about their sustainability plans. We also discussed climate change with Royal Dutch Shell at its annual responsible investor meeting.

Business Benchmark on Farm Animal Welfare

Farm animals are used extensively across many sectors such as food producers and processors, retailers and restaurants, and leisure. However, many companies have been slow to develop policies and procedures to address specific welfare issues. The Business Benchmark on Farm Animal Welfare is designed to measure company performance and help drive higher standards. We have become a supporting institutional investor of the initiative, and will use the tool to aid engagement.

Living Wage

We escalated engagement with Lloyds Banking Group through the Church Investors Group. It is now reviewing the potential to pay the Living Wage to third party contractors. Rexam told us it believes it meets Living Wage criteria in the UK and will consider pursuing formal accreditation. Smith & Nephew has now told us it meets Living Wage criteria for its UK staff but has not confirmed the status of its third party contractors.

CDP Water Survey

Water scarcity represents a serious and growing challenge for business, communities, and countries. Tesco and J Sainsbury responded to our requests for more information about their water management initiatives. Both food retailers have undertaken considerable work to understand water scarcity risk and reduce water use in their operations and supply chains. Royal Dutch Shell told us that it views water use as a local issue, and puts water management plans in place in areas of water scarcity.

Human rights and trafficking

Modern slavery is a pernicious phenomenon that causes misery and suffering. We routinely engage with companies where trafficking or slavery may present a risk. Following engagement, easyJet provided reassurance about its training and observational tools to detect and report any suspected incidences of trafficking. The company also confirmed its commitment to support and protect internationally proclaimed human rights.

Corporate governance & executive remuneration

We wrote to the chairman of Burberry following the defeat of the Remuneration Report at the company's AGM. We expressed disappointment about the recruitment package awarded to the new Chief Executive, which included a £440,000 fixed allowance and a base salary of £1.1m. Discretionary performance shares with a face value of £7m also led us to oppose the Remuneration Policy and Report and vote against the re-election of all the members of the Remuneration Committee.

During the third quarter we continued to apply a rigorous approach to excessive remuneration by opposing or voting to abstain on 23 remuneration reports and policies including M&S, J Sainsbury, BT Group, British Land, Vodafone and National Grid Group. Incentive Plans were opposed at Burberry, Vodafone and Oxford Instruments, among others. Our European voting partner, ISS, continued to exercise proxy voting for our Europe-ex UK portfolio, where the main issues opposed included board elections and shareholder capital issues.