Ethics

Socially responsible investment review
December 2009

Climate Change and Copenhagen

The failure of the Copenhagen Summit to reach agreement on how the world will tackle climate change was a significant disappointment. A delay in international agreement lessens the economic incentives for companies to reduce greenhouse gas emissions.

There are investment implications of the lack of progress in Copenhagen. Many companies had structured their operations on the basis of a common carbon price. This will now be delayed. Before the summit we signed a statement organised by the Institutional Investors Group on Climate Change urging government action. We will continue to work through the IIGCC to promote the investment case for taking action on climate change.

We have been calling on companies to disclose and reduce carbon emissions, using data from the Carbon Disclosure Project. This is one way we are implementing our new Climate Change policy.

Oil sands

There is the potential to extract a considerable amount of oil from oil sands, in the form of bitumen, although this requires a permanently higher long run oil price to be economic. The process which involves separating bitumen from the water, sand and clay requires significantly more energy (and hence more greenhouse gas emissions) than most other forms of oil production. It also results in other environmental damage, particularly in relation to water.

Consequently, we have co-filed shareholder resolutions on the subject for the BP and Royal Dutch Shell AGMs. The resolutions call for more information about how decisions to invest in oil sands projects are being made and how the risks are being assessed, but do not call for companies to stop oil extraction from oil sands. We have been engaging on this issue for some time and since co-filing, further meetings with the companies have been arranged.

Royal Dutch Shell

Royal Dutch Shell’s remuneration committee exercised its discretion and awarded a bonus payment even though the company had missed its target and under the existing scheme no bonus should have been paid. Consequently, we and many institutional shareholders voted against the remuneration report, resulting in its rejection at the 2009 AGM.

We met with the chairman and colleagues on behalf of the Church Investors Group (CIG). Shell highlighted that there would be a significant severance payment for an executive this year. However, the company appeared to be taking investor comments seriously and has amended its remuneration policies accordingly.

Amec

Although portfolios do not hold shares in this company, a review highlighted that it runs Trident nuclear weapon storage facilities. It has therefore been excluded from potential investment.

Nestlé

We met with Nestlé in December, in a meeting attended by a number of CIG members. The company emphasised its belief that its policies on the marketing of infant formula were the most stringent in the industry, as well as noting work on fairtrade and conditions on cocoa plantations. A report on the meeting will be posted on the CIG website

BSkyB

In 2009 we engaged at a high level with BSkyB. We noted that the company had changed over the years but expressed our disappointment that it retained seven ‘adult content’ film channels. We were, therefore, pleased when the company informed us that by early January 2010 all the channels will have been closed.

Petrofac

Petrofac is an oilfield services company. A very small part of its business operates a facility in Sudan. The Sudan Divestment Campaign has removed it from its divestment list on the basis that the company is a positive influence in Sudan which might be lost if it was forced to pull out. Though the portfolios we run do not hold Petrofac shares, we met with the company and expressed our concerns about the situation in Sudan.

Supply chains

We met with Associated British Foods to find out more about how its clothing retailer, Primark, manages its supply chains. We believe the company has adopted a constructive approach, but discussions will continue. We were particularly concerned about wage levels in developing countries. We also met supermarket retailer WM Morrison to discuss its supply chain.

Prisons

A new prison policy has been agreed and is available here. This notes the Methodist Church’s particular concerns about children being held in prisons and detention centres.

Church Investors Group

The CIG met in November and discussed executive remuneration, following a report it commissioned from two leading theologians. This should be published in the near future and we will make it available to our clients. The CIG meeting also discussed oil sands and met with water company United Utilities to learn more about its approach to corporate responsibility. If you would like more information about the CIG please contact Bill Lane.