Ethics

Socially responsible investment review
March 2009

Climate Change

An assessment of carbon emissions is key when comparing companies on climate change issues and engaging with them. We monitor which companies respond to the Carbon Disclosure Project questionnaire and wrote to all FTSE Mid 250 companies held in our portfolio that had either not responded or had declined to participate in the last survey. The Church Investors Group (CIG) wrote to all FTSE 100 companies that had not participated. In addition we wrote to International Hotels Group, the only FTSE 100 company held by the CFB that did not participate in the survey and were disappointed with the reply.

Work on investment and climate change issues continues. We commissioned Trucost to assess the UK Equity Fund carbon footprint. We have also worked with the Methodist Church, which is soon to publish a report on climate change. We have used these theological reflections to inform our research on how better to integrate climate change issues in our investment strategies and hope to approve a policy statement in the coming year.

Executive Remuneration

Executive pay and corporate governance have been much in the news over the past few months, for understandable reasons. The CFB has often abstained or voted against executive remuneration reports because in our view they fail to meet adequate standards in terms of disclosure, links to performance, or avoidance of excess. For example, the CFB joined over 90% of shareholder votes in voting against Royal Bank of Scotland’s pay policy.

We also joined with the United Methodist Church in supporting an open letter from PRI calling for new measures on executive remuneration and corporate governance reform in the US.

Arcelor Mittal

The steel and mining company Arcelor Mittal is held in our European portfolio. Following our engagement with other mining companies we are now examining this company. Accidents at mining operations in the past have raised concerns. Many of the mining assets are quite old and it will take time to improve them. We hope to meet with the company in the near future.

Companies with military exposure

Four companies were reviewed and two were considered to have insufficient military exposure to warrant exclusion: Bodycote, a specialist engineer, which made clear that none of its facilities were specifically to make weapons or ammunition and Dassault Systemes a producer of shipbuilding design software. However, Morgan Crucible’s recent acquisition of a stake in NP Aerospace raised its military exposure to an unacceptable level. Thyssen Krupp was also excluded as the submarines it sells to Israel could be used as nuclear weapons platforms.

Companies providing armed services

Incidents in Iraq involving private security services have highlighted the need for socially responsible investors to consider what approach to adopt on listed companies involved in this sector. Drawing on our work that led to a policy on companies with military exposure, we have produced an additional policy statement Contractors Providing Military and Security Services.

BSkyB

Our engagement with BSkyB continued during the quarter. We met Jeremy Darroch, Chief Executive, under the auspices of the Church Investors Group. We encouraged BSkyB to cease its ownership of ‘adult content’ movie channels, which now seems anomalous for a company that has changed considerably with Sky becoming a more mainstream television company. We also discussed BSkyB’s policies on responsible gambling. CIG members will have access to a note of the meeting.

Vodafone

The protection of children, access to inappropriate images, and the provision of gambling facilities through mobile phones are issues of concern to us. Vodafone’s approach to social responsibility marks it as an industry leader, but issues remain and we continued our dialogue with the company during the quarter.

Water sustainability

The sustainable use of water and rights of access are likely to become increasingly important issues for countries and companies in the years ahead, especially as global warming impacts on climates. The Ecumenical Council on Corporate Responsibility (ECCR) published a report on the issue recently. We discuss water issues as part of our regular engagement activity, most recently with Nestlé.

Access to medicines

We have long been concerned that medicines should be accessible to the world’s poor. This is not simply a matter for companies, but governments and aid agencies too. Funding needs to be sufficient for research into new drugs to be worthwhile, even if no profit is expected. We welcome news that GlaxoSmithKline is to cap prices for its drugs sold in the fifty poorest countries together with moves to share research into compounds which could treat diseases previously neglected by the industry.