The UK Stewardship Code was published by the Financial Reporting Council in July 2010. It aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the Financial Reporting Council believes institutional investors should aspire.
The Central Finance Board of the Methodist Church (CFB) and Epworth Investment Management Limited (Epworth) signalled their support of the Code in a preliminary response issued in November 2010.
The CFB and its sister organisation, Epworth, welcome publication of the Stewardship Code and this Statement publicly signals our endorsement of the Code’s Principles. The Principles of informed engagement with companies set out within the Code, lie at the heart of our investment approach; the Stewardship Code provides a valuable, additional context for enhancing the responsibilities of shareholder ownership.
Our detailed Statement in response to the seven Principles contained within the Code is set out below, and this incorporates revised recommendations made in autumn 2012.
Principle 1: Policy disclosure
"Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities"
- Stewardship responsibilities are discharged internally using external service providers to support and inform our in-house decision making
- We are long-term investors concentrating heavily on the faith community and we integrate the principles of ethical and responsible investment into our investment philosophy and practice
- We seek long-term shareholder value in which, as responsible owners, dialogue and engagement with the companies in which we invest is a fundamental part
- Our detailed policies are published on our two websites: www.cfbmethodistchurch.org.uk/ethics and www.epworthinvestment.co.uk/ethics
Principle 2: Conflicts of interest
"Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed"
- The CFB is the investment arm of the Methodist Church in the United Kingdom; Epworth is jointly owned by a number of Methodist related organisations, including the CFB. Investment policies, staff, systems and premises are shared by the CFB and Epworth.
- We do not advise or publish advice that might conflict with the responsibilities of managing investments on behalf of CFB or Epworth clients
- Our policy regarding potential conflicts of interest and “Treating Customers Fairly” in the conduct of investment business forms a key part of our overall compliance regime, and is available on request
Principle 3: Monitoring companies
"Institutional investors should monitor their investee companies"
- We are active managers and all underlying investments are closely monitored in respect of their financial and ethical performance
- Ethics are always on the agendas of the CFB Council and Epworth Board whose tasks are to hold the executive management and staff to account for their investment oversight
- The Joint Advisory Committee on the Ethics of Investment (JACEI) provides advice to the CFB and Epworth. Through its regular meetings, it scrutinises our investment portfolios from an ethical perspective as well as our regular corporate governance activity
- Engagement and oversight is normally prioritised according to the material risks (financial and non-financial) attendant on the underlying investments. Where we assess there are material concerns, these will be discussed with the relevant company
- Staff actively monitor ethical issues as part of their standard research into companies. Ethical issues are normally discussed at our internal monthly Ethics Meetings, which also prioritise workflow, including engagement with companies.It is currently our policy to notify companies when we have taken action to oppose or abstain management proposals on an exceptional basis only
Principle 4: Escalation policy
"Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value"
- We have adopted clear practices and processes for the escalation of engagement oversight, depending on the nature of the issue
- As responsible investors we seek to meet and engage with company management in an open and constructive manner in order to understand the issues and raise our concerns
- Escalation would normally occur if a request goes unanswered or is inadequately addressed
- The usual method of escalating contact with investee companies is via senior management; the Chief Executive (for strategic and operational matters) or the Chairman and Senior Independent Non-executive Director (for governance and other issues)
- Senior CFB/Epworth management would seek to lead any escalated activity
- We are willing to share and make our views known when concerns are not fully met
Principle 5: Collective action
"Institutional investors should be willing to act collectively with other investors where appropriate"
- We actively seek to partner collaborative initiatives with like-minded investors in particular the Church Investors Group, a collaborative organisation of faith based investors in Britain and Ireland, but also through other groups of responsible investors in the UK and overseas
- We are willing to co-file and take an active role in the preparation of shareholder resolutions with other investors where these are deemed to be appropriate and in response to material ethical and investment concerns that would otherwise have gone unaddressed
Principle 6: Voting disclosure
"Institutional investors should have a clear policy on voting and disclosure of voting activity"
- The CFB and Epworth actively vote their directly held shares. These are principally domiciled in the UK and Continental Europe
- Our proxy voting policies and templates, developed in partnership with other like-minded investors are published on the website
- Our summary UK and European proxy voting reports are published electronically each quarter, whilst our more detailed voting record is available on request
- We have been instrumental in facilitating greater coherence in voting among the British and Irish Christian churches to emphasise the importance we collectively place on sound corporate governance
- Proxy voting is outsourced to external specialist voting agencies. Voting recommendations are based on a Voting Policy Template developed in partnership with other churches and executed by the relevant agent. Voting outcomes are monitored closely to ensure they are appropriate and comply with the Policy Template. Voting decisions can be manually over ridden if required
- It is not CFB or Epworth policy to undertake or arrange stock lending and recall
Principle 7: Periodic reporting
"Institutional investors should report periodically on their stewardship and voting activities"
- We report to clients on our investment activities on a regular basis. As well as the required financial performance and Fund activity reports, this includes detailed coverage of our ethical and responsible investment and engagement work on behalf of clients
- An Annual Report is published of the work of the CFB. In addition, JACEI reports annually to the governing body of the Methodist Church (the Methodist Conference), and this contains an assessment of whether the CFB has managed the Funds under its control in accordance with the aims of the Methodist Church. These annual reports are available to all CFB and Epworth clients
- Annual Reports of the Funds managed by Epworth are freely available from the Epworth website as are quarterly ethical and responsible investment reports, and copies of the Funds' policies
- JACEI provides external oversight of all CFB and Epworth Stewardship policies, processes and procedures, consistent with current best practice
Our stewardship activities are an integral part of how we manage our Funds on behalf of the Methodist Church and our Epworth clients. These activities are fully integrated into our operating compliance procedures and reporting lines through the Church and to Epworth clients
This Statement has been endorsed by the CFB Council and the Epworth Board.