Ethics

Socially responsible investment review
March 2010

Water Sustainability

Water availability, careful usage and equitable distribution are becoming crucial business issues for companies operating in industries of high use or where supply is scarce. Consequently, we have become signatories of the Water Disclosure Project (WDP), a new initiative seeking to improve public disclosure of risks associated with water. By targeting the largest companies operating in water stressed territories, the ultimate aim of WDP is to minimise use and manage the impact of scarcity over time.

Carbon Disclosure Project

We have continued to target companies that have either declined to participate in the CDP or have failed to respond to requests to do so. With a focus on high impact sectors, we wrote to 14 companies asking them to participate in the 2010 survey. To date we have had positive responses from two companies (Halma and Wellstream) indicating they will now take part. We will continue to follow the others up individually and as part of the CIG engagement initiative on CDP.

Carbon Footprint

Our UK Equity portfolio has been subject to carbon footprint analysis by both Trucost and EIRIS using different methodologies. Gratifyingly, both concluded that our carbon footprint was marginally better than the FTSE All Share Index. Although the results should be used with caution owing to the inexact nature of the analyses employed, it nevertheless provides useful data on the underlying carbon intensity of the portfolio.

Canadian Oil Sands

As reported in December, we co-filed resolutions at the BP and Royal Dutch Shell AGMs. These call for more information about how decisions to invest in oil sands projects are made and how related risks are assessed. Subsequently, we have had very useful dialogue with Shell, which has responded with a detailed report on their oil sands projects. BP has not responded with the same degree of engagement and the situation continues to be monitored in the run up to both meetings.

Israel Palestine

A Position Paper on investment in Israel Palestine was published in March 2007. We now intend to progress this into a Policy Statement for adoption later this year.

BSkyB

Following the closure of the last of its seven wholly owned ‘adult content’ channels in January, JACEI concluded that the primary reason for excluding BSkyB from investment had now been satisfactorily removed. Although it continues to broadcast ‘adult content’ channels, this is a regulatory requirement under its license to operate and we are satisfied that Sky does not market them and has rigorous access controls in place. Consequently, BSkyB was removed from the ethically excluded list, but it will continue to be closely monitored in relation to its gaming activities.

Xstrata

Xstrata is a major multinational extractives company operating primarily in South America and Australasia with interests in coal, alloys and copper. Following a detailed internal ethical review of the company, there appeared sufficient grounds to consider its inclusion in the ‘best in class’ category. It was decided to meet the company to discuss the challenges highlighted by the review.

Other Company Ethical Reviews

Two companies were added to the ethically excluded list: Booker, which derives up to 40% of sales from tobacco; African Barrick Gold whose current level of disclosure and its relatively poor health and safety record did not merit inclusion in the ‘best in class’ category. The oil service company, Petrofac, has a small operation in Sudan. However, as it complies with the requirements set out in the Church Investors Group statement on Sudan, JACEI did not recommend that it be added to the ethically excluded list.

Corporate Governance Proxy Voting

Working with PIRC, we have revised our UK voting template. It continues to place strong emphasis on meeting rigorous standards of corporate governance in keeping with guidance laid down in the UK Corporate Governance Code, with a particular focus on remuneration practices. The template has also been adopted as best practice by the Church Investors Group. Our European equities will in future be voted in line with other UK church investors using a voting template provided by Glass Lewis. This was designed to take into account differing market approaches to voting in the major European markets, and a more generic approach for the minor ones.

Church Investors Group (CIG)

In the Budget, the UK government undertook to review “the tools available to shareholders” to control executive pay, such as upfront approval of packages. It was timely therefore that the CIG report, The Ethics of Executive Remuneration: a Guide for Christian Investors was released the week before. The report drew heavily on theology to present a case for justice, restraint and good stewardship. We hope it will make a contribution to the debate on pay and performance that has followed in the wake of the financial crisis. Amongst others, it was sent to the chairmen of all FTSE 100 companies and the leaders of the political parties. The full report and more information about the CIG can obtained from Bill Lane or found on the CIG website www.churchinvestorsgroup.org.uk