Ethics

Socially responsible investment review
September 2009

Climate Change

The new Policy Statement on climate change, together with a position paper will shortly be available on the website. The challenge of climate change is significant and much depends upon the Copenhagen summit in December. We were one of 181 institutional investors representing $13 trillion to sign a Statement calling on Heads of State to reach a global agreement on climate change as a matter or urgency.

For the first time we have sought to measure the carbon footprint of the UK equity portfolio using input from both Trucost and EIRIS. In assessing the data it is important to recognise that in order to operate apparently low carbon emitting companies require the services of energy intensive industries. We are encouraged by increased participation in the Carbon Disclosure Project, but continue to write to those companies that still refuse to do so.

Prisons

Prisons are a necessary part of society and ethical standards must be applied here as elsewhere. Some companies own or operate prisons on behalf of governments, perhaps through a private finance scheme. JACEI is close to recommending a policy on investment in such companies. It will reflect the Methodist Church’s position against the death penalty, its concern for children, and the need for prisons to be run to the highest ethical standards.

Children’s Issues

A policy on children’s issues has now been agreed which, together with a position paper, is available on our website. We have been in regular dialogue with our US partner, the United Methodist Church, on concerns that US companies are buying cotton produced in Uzbekistan using child labour.

Tesco

We voted for a shareholder resolution on workplace rights brought to Tesco’s AGM by the union Unite. The resolution focused on meat and poultry suppliers in particular.

Royal Dutch Shell

At a recent meeting with Royal Dutch Shell we received an update on how the company’s reorganisation would impact on its approach to corporate social responsibility. In addition we reviewed the ongoing situation in Nigeria. The settlement between Shell and Ogoniland activists seems a step in the right direction. Although Shell has no intention of operating in Ogoniland, there is a need to repair and maintain pipelines to prevent accidents. However, security and political realities continues to prevent access. Further progress has been made to end gas flaring but lack of government finance to the joint venture continues to delay the programme. The need for acceptable operating criteria in relation to the controversial tar sand deposits was raised.

BSkyB

Our engagement with BSkyB has been broadened and we recently met the company to discuss its links to gambling. Even though it currently represents less than 1% of revenues, we wanted to find out how the company ensured its operations were run responsibly. Our initial favourable impressions were boosted by the fact that gambling for high stakes was not encouraged. However, we remain concerned that the contribution to earnings may grow rapidly. Engagement on this and other issue continues.

Vodafone

Vodafone in our view holds a leading position amongst companies which sell media content with regard to the content controls it has in place. We met with the company to express our concern that Vodafone sells pornographic content, even though content controls must be lifted for a purchase to occur. Our view is that the sale of such content is unnecessary and carries reputational risks as was demonstrated by a recent BBC documentary.

Associated British Foods

Associated British Foods has been in the news on a few occasions over the past couple of years in connection with the supply chain for its Primark division. The working practices of suppliers in the UK and India have been questioned. We reviewed the company to identify areas of potential engagement. In general we believe ABF has good corporate responsibility policies and has properly addressed issues that have arisen, but we feel it is important to engage more closely with the company.

Corporate governance

CFB policy is to vote at all AGMs and EGMs and our robust policy on executive remuneration continues to result in a significant number of ‘no’ votes. We also look for companies to follow the Combined Code on corporate governance and have been concerned that Marks and Spencer has an executive chairman and no chief executive. Although the company intends to make changes next year it has taken too long to follow good practice. We voted for a shareholder resolution brought by local authority pension funds calling for quicker action without having to vote against the chairman’s re-election.

Principles for Responsible Investment (PRI)

The annual PRI assessment of our level of implementation of the Principles placed us in the top quartile for 5 of the 7 criteria and in the second quartile for the remaining ones. We are making increased use of the facilities made available by this increasingly significant initiative.