Ethics

Socially responsible investment review
September 2008

Our approach

The CFB continually monitors investments from a responsible investment perspective, applying specific policies to companies and sectors. We also make use of the Methodist Church’s Joint Advisory Committee on the Ethics of Investment (JACEI). Details of our ethical policies and background papers can be found at here.

We conduct original research on themes such as the environment and human rights. CFB fund managers integrate financial and ethical analysis of companies to ensure a consistent approach.

CFB clients have access to all our ethical policies and background papers. We welcome input from clients on SRI matters.

For further information contact Bill Lane on 020 7496 3630.

Rio Tinto

We noted that the Norwegian Government Pension Fund had decided it should no longer hold shares in Rio Tinto. The Norwegian finance minister was reported to have cited environmental damage from the Grasberg mine in Indonesia as the reason for the decision. Rio Tinto is a junior partner in the joint venture operated by Freeport McMoRan. Rio Tinto responded with some surprise to the move. It drew attention to its environmental record and pointed out that it does not operate the mine. The CFB has been in dialogue with Rio Tinto about Grasberg for some time. The Norwegian decision highlights the complex nature of SRI issues and the difficulty of how to judge a company fairly when it is involved in a joint venture in which it has no operational control.

Anglo American

Further information was released concerning water quality in relation to an Anglo Platinum mining operation in South Africa. A report earlier in the year by Action Aid claimed water supplies to surrounding communities, including a school, were contaminated by mining given they contained nitrates. However, a subsequent independent study, which included isotope testing, found that neither the school supply nor other drinking water supplies mentioned by Action Aid were contaminated by mining pollution. Other forms of pollution did exist, arising perhaps from poor sewerage. Two sites, which Anglo American states are used for non-drinking water supplies, were found to contain pollution consistent with mining. Anglo Platinum subsequently fenced off the sites.

Climate Change

The CFB has participated in the Carbon Disclosure Project since its inception. CDP encourages companies to disclose carbon emissions, which allows investors and others to compare companies’ contribution to climate change, especially within sectors. We have been contacting companies which declined to participate in the latest survey, asking them to reconsider their position and take part in the next survey.

The Methodist Church continues to put considerable effort into climate change and a major report on the subject, including theological input, should be available during 2009. We are following this work closely and anticipate that it will be of considerable help as we work towards formulating a written policy on investment and climate change.

G4S (previously Group 4 Securicor)

The acquisition by G4S (a FTSE company) of ArmorGroup raises new issues for us. ArmorGroup is a private security contractor which operates in conflict zones such as Iraq. It is a sad fact of life that civilians, including NGO workers, sometimes need armed protection which cannot be obtained from national armed services. However, holding shares in a company with armed personnel would be regarded as a significant step by some. JACEI is therefore taking time to work through the ethical issues involved, in the light of our new policy on investing in companies with military exposure. In the meantime, G4S continues to be excluded from our list of companies regarded as being acceptable for investment on ethical grounds.

Socially responsible investment and children

We have produced a paper on investment issues involving children, following a review of this area. The paper describes the unique ethical character of children and their essential vulnerability, which means that they are often the first to suffer when problems emerge. It notes the general principles set out in the UN Convention on the Rights of the Child and describes the ethical issues highlighted by the UK’s leading children’s’ charities and UNICEF. Issues are categorised by industrial sector to guide our research and engagement work. However the paper demonstrates that a more general approach is also required. A policy on this area is now being drafted.

European Equity Fund

From the beginning of October the Epworth European Equity Fund became a portfolio designed to track a new ethical benchmark index. The index was constructed by FTSE, on our behalf, from the larger European listed companies and excludes those stocks which do not meet our ethical criteria.

Dalits and caste discrimination

The CFB examines the approaches companies take towards human rights, especially in countries where human rights are not always respected. One issue that has come to our attention is that of caste discrimination. We will seek to ask relevant companies how they work to combat this in their operations.

Nuclear power

Through the Church Investors’ Group we met representatives of EDF to discuss ethical issues relating to nuclear power. The CFB does not exclude companies which operate civil nuclear power stations. However, despite tight regulation this sector is one where it is vitally important for companies to have the right approach to corporate responsibility.